The economic market outcomes and income distribution when capital is not homogeneous (original) (raw)

Output, Capital, and Labor in the Short, and Long-Run

Southern Economic Journal, 1994

Using a new series of capital stock and frequency domain analysis, this paper provides new empirical evidence on the relative importance of capital and labor in the determination of output in the short and long-run. Contrary to the common practice in the traditional growth accounting literature of assigning weights of 0.3 and 0.7 to capital and labor inputs respectively, the evidence presented here suggests that capital is a far more important factor than labor for determination of output at and near the zero frequency band. Furthermore, I show that the zero-frequency labor elasticity of output may well be close to zero, or even zero. Additional findings reported here support the traditional accelerator model of investment as a good description of the long-run investment process.

Labor Supply, Biased Technological Change and Economic Growth

SSRN Electronic Journal, 2000

We consider a model of factor saving innovations and study the effects of exogenous changes in labor supply. In a biased innovations setting, as economies accumulate capital, labor becomes relatively scarce and expensive. As a consequence, incentives for labor saving and capital using innovations appear. By the same token, exogenous changes in labor supply affect factor prices. In general, a reduction in labor supply decreases current output and generates incentives for labor saving innovations. Therefore, the effect that a change in the supply of labor has on factor prices is mitigated and, depending on the initial conditions, it may be contrasted by the effect of the technological bias. Finally, the movements of the factor prices affect the saving decisions and consequently the dynamics of economic growth. We explore the consequences of an exogenous decrease in labor supply in two different settings: a homogenous agents model with infinite horizon and an overlapping generations model. JEL Classification: O11, 031, J20, J31.

THE RECONSTRUCTION OF CAPITAL THEORY The True Meaning of Capital in a Production Function

The purpose of the present article is to explore the possibilities of a reconstruction of a Theory of Capital capable of taking into account the Reswitching phenomenon. In Section 1 a new measure of capital-time, for neoaustrian processes of production, is introduced. The main outcome of the use of this proposed new measure of capital is this: it can be shown that, even when Reswitching occurs, there is still always an inverse relationship between the rate of interest or profit and the quantity of capital-time. In Section 2 the results of Section 1 are extended for the case of two good technologies examples. In Section 3 a surrogate production process is introduced. By developing this surrogate production process it can be shown that in general there is an inverse relationship between the interest rate and the quantity of surrogate capital per man, the surrogate capital/output ratio, and between the interest rate and the newly defined steady-state consumption per capita. Section 4 presents further comments on the results of the previous sections. Section 5 introduces numerical examples.

A theoretical and empirical study of the demand for labour and capital

1979

This dissertation is the result of a combination of micro-economic analysis and econometric techniques. Starting point was the wish to investigate (theoretically and empirically) how internal adjustment costs and market imperfections might influence the adjustment of factor inputs. Therefore appropriate models of firm behaviour had to be constructed and their properties had to be studied. In order to estimate the resulting factor demand equations, data had to be collected and estimation procedures had to be programmed. It is clear that this work could not have been done without the help of others. In the first place I would like to thank Dr. A. L. Hempenius who suggested me the subject of this study and who was most interested in its further progress. The thorough discussions with him and his careful reading of and critical comments on preliminary drafts were a great help for me. Mr. F. v.d. Munckhof did an excellent job in collecting the data used in this research project. The assistance of the Programming Department of the Tilburg Computing Center should also be mentioned. I am especially grateful to Ir. T. de Beer and Ir. A. Markink who were so kind as to programm some necessary estimation procedures. Professors v. d. Genugten and de Jong made valuable comments on sections of this study. Finally I would like to thank all colleagues of the de-Dartment of Econometrics; in discussions with them I learned the profession. Footnotes to Chapter 1 2. Dynamic Optimal Factor Demand under Financial Constraints 2.1. Introduction 2.2. Specification of the object function and form of the financial constraints 2.3. The optimal adj ustment path 2.3.1. The Lagrangian function 33 2.3.2. Zero marginal adjustment costs 36 2.3.3. Positive marginal adjustment costs 2.4. Conclusion 48 Footnotes to Chapter 2 III 3. Imperfect Competition and Rigid Wage Forming on the Labour Market (s) and the Adjustment of Factor Inputs 53 3.1. Introduction 53 3.2. A strong disequilibrium model 3.2.1. Assumptions and definitions 3.2.2. A static model with supply constraints 57 3.2.3. A dynamic model with supply constraints 3.3. A weak disequilibrium model 63 3.3.1. Oligopsonistic labour markets 3.3.2. A dynamic model with an oligopsonistic labour market 3.3.3. The analysis of the optimal adjustment path under positive marginal adj ustment costs and labour constraints effective in the first k periods 3.4. Conclusions 82 Footnotes to Chapter 3 84 4. An Econometric Specification of the Factor Demand Model 93 4.1. The specification of factor demand equations under financial and labour supply restrictions 93 4.1.1. Replacement investments 4.1.2. A model with financial and labour supply restrictions 4.1.3. A multivariate adjustment model with cyclical components 4.1.4. The structural model 4.2. Further specification problems 4.2.1. The specification of the product demand curve 101 4.2.2. Form of the revenue function and specification of optimal inputs 101 4.2.3. Technical progress, factor substitution and vintage production function 106 4.2.4. Forecasting schemes 107 4.2.5. The specification of the labour market variables 108 4.2.6. The specification of the debt capacity 111 IV 4.2.7. The specification of the factor demand model 112 4.2.7.1. Introduction 112 4.2.7.2. The proportional adjustment model 113 4.3. Stochastic specification 117 4.3.1. The specification of the error processes of the adjustment model and the rational expectations model 117 4.3.2. Simultaneity problems 118 4.3.3. Errors in variables 119 S.3.4. Systematic and random parameter variation 119 4.3.4.1. Systematic parameter variation 119 4.

Appropriate technology and the labour share

We provide a general theoretical characterization of how technology choice affects the long-run elasticity of substitution between capital and labour. While the shape of the technology frontier determines the long-run growth path and the long-run elasticity, adjustment costs in technology choice allow capitallabour complementarity in the short run. We develop a class of production functions that are consistent with balanced growth even in the presence of permanent investment-specific or other kinds of biased technical progress but where, consistent with empirical evidence, short-run dynamics are characterized by complementarity. Importantly, the approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of the new production technology provides a good match for the short and medium run behavior of the US labour share.

The Supply of Labour and Household Production

AIEL Series in Labour Economics, 2009

Labor supply is seen as an output from household production. Given by the physical effort of a person, working in the market also requires specific inputs. This process may be described with the help of a general technology that comprises joint production. At least one of the outputs is labor supply. With the help of a simplified version of the model, initially the choice among different types of market work is discussed. Within this discussion, it is shown how different estimates of the opportunity cost of time naturally appear, all in standard microeconomic results. Then, the definition of net result of the worker is related to economic rent due to the fact that the consumer-producer can not alter the time endowment.

Firm heterogeneity in capital?labour ratios and wage inequality

The Economic Journal, 2007

This paper provides some empirical evidence and a theory of the relationship between residual wage inequality and the increasing dispersion of capital/labor ratios across firms. I document the increasing variance of capital/labor ratios across firms in the US labor market. I also show that the increase in the variance of capital/labor ratios across firms is related to the increasing variance of wages across workers. To explain these empirical regularities I adopt a search model where firms differ in their optimal composition of capital between equipment and structure. As the relative price of equipment falls over time the distribution of capital/labor ratios becomes more dispersed across firms. In a frictional labor market this force generates wage dispersion among identical workers. Simple calibration of the model indicates that the dispersion of capital/labor ratios can explain up to one half of the total increase in residual wage inequality.

Capital–Labor Substitution, Sector-Specific Externalities, and Indeterminacy

Macroeconomic Dynamics, 2012

This paper examines the effect of the elasticity of technological substitution on the existence of equilibrium indeterminacy in two-sector economies. Following recent empirical evidence, the elasticity of substitution between capital and labor is below unity and we find that this requires a higher degree of productive externalities in order to still be able to produce indeterminate equilibria. However, empirically realistic rates of substitution do not rule out indeterminacy.