Decline In Labor Share Research Articles

Declining Labour Share - Evidence of A Change in Underlying Production Technology?

The study demonstrates that the decline in the labour share in Finland can not be explained by the Cobb-Douglas production function. Instead, we propose an approach based on the constant-elasticity-of-substitution (CES) production function with labour- and capital-augmenting technical progress. The model is augmented by imperfect competition in the output market. According to the empirical results based on estimation of the first-order-conditions, the technical elasticity of substitution is significantly less than unity (0.6) and hence the Cobb-Douglas production function is rejected. The growth rate of the estimated labour-augmenting technical progress has decreased in recent years, which is not consistent with the 'new-economy' hypothesis. Capital-augmenting technical trend has exploded during the same period, which provides a possible explanation for the rapid growth of the Solow residual. The main contributing factor behind the declining labour share is, however, the increasing mark-up.

Factor Substitution in Colombian Agriculture

AbstractA declining labor share in agriculture is consistent with an elasticity of substitution between labor and other factors greater than unity. Using cross‐section data drawn from a small sample of Colombian crop farms, this study develops a three‐factor model and estimates the Allen‐Uzawa partial substitution elasticities between the factor‐pairs land, labor, and farm machinery. Both Ordinary and Generalized Least Squares estimation procedures provide elasticity estimates that agree with each other and with the results of recent and related research: a substitution elasticity between labor and machinery (capital) of about one and a half is strongly indicated.