DP12342 The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration

Author(s): Gene Grossman, Elhanan Helpman, Ezra Oberfield, Thomas Sampson
Publication Date: September 2017
Keyword(s): balanced growth, capital share, capital-skill complementarity, Labor Share, neoclassical growth, technological progress
Programme Areas: Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12342

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 a la Ben Porath (1967) and capital-skill complementarity a 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.