Endogenous Education and Long-Run Factor Shares

Abstract

We study the determinants of factor shares in a neoclassical environment with capital-skill complementarity and endogenous education. In this environment estimates of the elasticity of substitution between capital and labor that fail to account for human capital levels will be biased upward. We develop a model with overlapping generations, technology-driven neoclassical growth, and ongoing increases in educational attainment. For a class of production functions featuring capital-skill complementarity, a balanced growth path exists and is characterized by an inverse relationship between the rates of capital-and labor-augmenting technological progress and the capital share in national income. (JEL D33, E25, J24, O33)

From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share

“…8 Complementary explanations include an increase in the span of control (Aghion, Bergeaud, Boppart, Klenow, and Li (2019)), and a decline in knowledge diffusion between frontier and laggard firms (Akcigit and Ates (2021)). Explanations specific to the labor share decline include a slowdown in productivity (Grossman, Helpman, Oberfield, and Sampson (2021)), an increase in firm-level volatility (Hartman-Glaser, Lustig, and Xiaolan (2019)), the treatment of intangible capital (Koh, Santaeulàlia-Llopis, and Zheng (2020)), the decline in the relative price of capital (Karabarbounis and Neiman (2014)), capital accumulation (Piketty and Zucman (2014)), import competition and globalization (Elsby, Hobijn, and Sahin (2013)), and corporate taxes (Kaymak and Schott (2018)). One related, but distinct, explanation is that of the aging of the workforce (Liang, Wang, and Lazear (2018), Kopecky (2017), Engbom (2019)).…”

Understanding climate damages: Consumption versus investment

“…For example, construction firms produce investment goods and are more vulnerable to climate change than retail firms, which primarily produce consumption services. A long literature shows that distinguishing between consumption and investment productivity has important implications for understanding economic growth (e.g., Greenwood et al, 1997;Grossman et al, 2017), comparative development (e.g., Hsieh andKlenow, 2007, 2010), trends in inequality (e.g., Krusell et al, 2000;Grossman et al, 2021), and business cycles (e.g., Fisher, 2006;Justiniano et al, 2010).…”