Abstract
The accumulation principle suggests that complementarity between capital and labor forces the labor income share to rise in the presence of capital accumulation. The CES model estimates using data from 20 Japanese industries between 1970 and 2012 explain the same outcome but with substitutable factor inputs. To resolve this puzzle, this paper proposes a variable elasticity of substitution (VES-W) framework that embodies a variable elasticity of substitution and a share parameter as a non-linear function of the Weibull distribution of capital-labor ratio. Empirical findings support the choice of a variable elasticity of substitution. While the estimated structural parameters calibrate the actual output level and the movements in factor income shares reasonably well in both the CES and VES-W models, the VES-W model outcomes support the accumulation principle by achieving the same result but with complementary factor inputs.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
