Factor Reallocation and Growth: What if There Are Labor Saving Innovations?
13 Pages Posted: 27 Jun 2019
Date Written: February 6, 2019
We claim that the standard methodology to study the effects of the reallocation of factors on growth is not adequate in the presence of biased innovations. Labor-saving innovations increase output per worker and may decrease the marginal productivity of labor. Therefore, a reallocation of labor from a sector with higher output per worker to a sector with lower output per worker may be productivity enhancing.
Keywords: factor reallocation, capital using and labor saving innovations, factor income shares, structural change
JEL Classification: D33, O11, O31, O33, J30
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