Discussion Paper Details

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

Author(s): Gene M. Grossman, Elhanan Helpman, Ezra Oberfield and Thomas Sampson

Publication Date: September 2017

Keyword(s): balanced growth, capital share, capital-skill complementarity, Labor Share, neoclassical growth and technological progress

Programme Area(s): Macroeconomics and Growth

Abstract: 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.

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Bibliographic Reference

Grossman, G, Helpman, E, Oberfield, E and Sampson, T. 2017. 'The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration'. London, Centre for Economic Policy Research.