Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach

Klump, Rainer; McAdam, Peter; Willman, Alpo

doi:10.1162/rest.89.1.183

Cited by 335 publications

(418 citation statements)

References 20 publications

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“…Section 2 has the statement and the proof of the generalized steady-state growth theorem. Section 2.1 gives 2 Klump, McAdam, and Willman (2007) study the US economy and confirm this pattern of technical change empirically for the period 1953 to 1998. 3 The reduced form of the three-sector model of endogenous capital-and labor-augmenting technical change devised in Irmen (2011) shares the relevant properties with the one-sector model of Irmen (2013).…”

Section: Introductionmentioning

confidence: 61%

A Generalized Steady-State Growth Theorem

Irmen

2016

Macroecon. Dynam.

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Uzawa's steady-state growth theorem (Uzawa (1961)) is generalized to a neoclassical economy that uses current output, e. g., to create technical progress or to manufacture intermediates. The difference between aggregate final-good production and these resources is referred to as net output. The new generalized steady-state growth theorem holds since net output exhibits constant returns to scale in capital and labor. This insight provides an understanding for why technical change is labor-augmenting in steady state even if capital-augmenting technical change is feasible. By example, this point is made for three recent growth models that allow for endogenous capital-and labor-augmenting technical change, namely, Irmen (2013), Acemoglu (2003), and Acemoglu (2009), Chapter 15. The reduced form of these models is shown to be consistent with the generalized steady-state growth theorem.

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Section: Introductionmentioning

confidence: 61%

A Generalized Steady-State Growth Theorem

Irmen

2016

Macroecon. Dynam.

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“…Some of the income earned by self-employed workers clearly represents labor income, while some represents a return on investment or economic profit. Following Blanchard (1997), Gollin (2002), Klump et al (2007), and McAdam and Willman (2013) we use compensation per employee as a shadow price of labor of self-employed workers: 9…”

Section: Datamentioning

confidence: 99%

Unraveling the Skill Premium

McAdam

Willman

2017

Macroecon. Dynam.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractFor the US the supply and wages of skilled labor relative to those of unskilled labor have grown over the postwar period. The literature has tended to explain this through "skill-biased technical change". Empirical work has concentrated around two variants:(1) Capital-skill complementarity, and (2) Skill-augmenting technical change. Our purpose is to nest and discriminate between these two explanations. We do so in the framework of 2-and 3-level CES production function where factors are disaggregated into skilled and unskilled labor, and the capital stock into structures and equipment capital. Using a 5-equation system approach and several nesting alternatives, we retrieve estimates of the elasticities of substitution and factor augmenting technical changes. Non-technical summaryFor the US and many other countries, the relative supply of skilled labor has grown markedly over the post-war period. Despite this expansion of supply, there has a large increase in the real wages of skilled labor relative to unskilled labor. This wedge is what we call the skill premium. How might we explain this phenomenon? The literature has tended to explain this through "skill-biased technical change". In particular, empirical work has concentrated around two variants: (1) Capital-skill complementarity, and (2) Skill-augmenting technical change. This does not preclude other explanations (off shorting, de-unionization etc.). But it does tend to view those alternative explanations through the lens of these two channels. Taking these two channels, our purpose is essentially to nest and discriminate between these two explanations. We do so in the framework of 2-and 3-level CES production function where input factors of production are disaggregated into finer components. For labor this disaggregation is into skilled and unskilled labor, and, for the capital stock, into structures and equipment capital. We derive the five non-linear equation system with cross-equation constraints. We estimate them under different assumptions on how the four factors and technical change augmenting them are combined in three-and two-level CES production functions. We retrieve estimates of the elasticities of substitution and factor augmenting technical changes. Our framework allows us to decompose in each case the level and growth rate of the skill premium into three separate channels: (1) capital-skill complementarity, (2) technical change channels as well as (3) ...

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“…The seminal contribution in this respect is Arrow et al (1961). Recent contributions are provided by Duffy and Papageorgiou (2000), Chirinko et al (2004), Klump et al (2004) and Antras (2004). In the study by Duffy and Papageorgiou (2000) a time panel of 82 countries over 28 years is used to estimate a CES specification.…”

Section: Introductionmentioning

confidence: 99%

“…By this technique they obtain estimates of the elasticity of substitution at around 0.40. Klump et al (2004) estimate a supply side system using non-linear estimation techniques for US time series data. They estimate the substitution elasticity at around 0.60.…”

Section: Introductionmentioning

confidence: 99%

“…Klump et al (2004) suggest that the reasons for these disparities can be attributed to differences in data construction, different a' priori assumptions about the nature of technological change and differences in the methods applied in estimating the parameters of the CES functions. In addition, it seems likely that the technological parameters differ substantially across countries (for instance as consequences of different stages of development and country level specialization in more advanced economies).…”

Section: Introductionmentioning

confidence: 99%

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Long-run relationships between labor and capital: Indirect evidence on the elasticity of substitution

Juselius

2008

Journal of Macroeconomics

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This paper suggests an indirect method for making inference on the parameter region of the elasticity of substitution between capital and labor. The idea is to investigate if the observed behavior of the data is consistent with theoretical relationships that depend on the particular parameter region of the elasticity of substitution. The advantage of this approach is that it allows for more data oriented modeling. Long-run empirical relationships, consistent with a modeling approach for the economy that assumes a CES production function with an elasticity of substitution above one, are established using Finnish manufacturing data JEL Classification: C32, E23, E24, E25, O30, O52.

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Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach

Cited by 335 publications

References 20 publications

A Generalized Steady-State Growth Theorem

A Generalized Steady-State Growth Theorem

Unraveling the Skill Premium

Long-run relationships between labor and capital: Indirect evidence on the elasticity of substitution

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