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    Capital Skill Substitutability and the Labor Income Share: Identification Using the Morishima Elasticity of Substitution

    Paul, Saumik | April 2018
    Abstract
    The relationship between a declining labor income share and a falling relative price of capital requires capital and labor to be gross substitutes at the aggregate level (i.e., 𝜎𝐴𝑔𝑔 > 1). I argue that this restriction can be relaxed if we distinguish labor by skills and identify differential capital-labor substitutability across skill groups. Using the Morishima elasticity of substitution in a three-factor nested-CES production function, I analytically estimate the elasticity of substitution parameters between capital and skilled labor (𝜌 ) and between capital and unskilled labor (𝜎). I then derive the necessary conditions for a decline in the labor income share based on 𝜌 and 𝜎, which does not require 𝜎𝐴𝑔𝑔 to be greater than unity.
    Citation
    Paul, Saumik. 2018. Capital Skill Substitutability and the Labor Income Share: Identification Using the Morishima Elasticity of Substitution. © Asian Development Bank Institute. http://hdl.handle.net/11540/8295.
    Keywords
    Economic Crisis
    Economic Efficiency
    Economic Policies
    Regional Economic Development
    Job Evaluation
    Evaluation
    Macroeconomic
    Macroeconomic Analysis
    Performance Evaluation
    Impact Evaluation
    Economic Welfare
    Economic Incentives
    Crisis
    Unemployment
    Economic cooperation
    Gross domestic product
    Employment
    Economic forecast
    Economic indicators
    Growth models
    Gross domestic product
    Macroeconomics
    Economic forecast
    Financial crisis
    Labor economics
    Regional economics
    Turnover
    Economic survey
    Job analysis
    Labor turnover
    International relief
    Exports
    Economic development projects
    Economic policy
    Economic forecasting
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    Citable URI
    http://hdl.handle.net/11540/8295
    Metadata
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    Author
    Paul, Saumik
    Theme
    Economics
    Evaluation
     
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise