The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration
52 Pages Posted: 5 Dec 2017
Date Written: October 30, 2017
We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation à la Ben Porath (1967) and capital-skill complementarity à la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.
Keywords: neoclassical growth, balanced growth, technological progress, capital-skill complementarity, labor share, capital share
JEL Classification: O400
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