Factor Saving Innovations and Factor Income Shares

Abstract

We present an endogenous growth model where innovations are factor saving. Technologies can be changed paying a cost and technological change takes place only if the bene…ts are larger than the costs. Since the gains derived from factor saving innovations depend on factor abundance, biased innovations respond to changes in factors supply. Therefore, as an economy becomes more capital abundant agents try to use capital more intensively. Consequently, (a) the elasticity of output with respect to reproducible factors depends on the capital abundance of the economy and (b) the income share of reproducible factors increases as the economy grows. Another insight of the model is that in some economies the production function converges to an AK in the long run, while in others long-run growth is zero.

Skill Polarization in Local Labor Markets Under Share‐altering Technical Change

“…The term in square brackets has an ambiguous sign: on the one hand, there is a direct negative effect on input 2's share; on the other hand, since the implementation condition (I) must be respected, the new technology has a positive effect on input 2's productivity, . Thus, the impact of technical change on input 2's price level can be negative. The elasticity of substitution between factors is larger than one (see also Zuleta, ). Indeed, by exploiting expression (II), it holds that: …”

“…On the other hand, Seater () was the first to formally investigate technological change as directly represented by changes in share parameters. Zuleta (), observing the historical fall in the share of raw labor in the United States, together with the stability of the share going to labor income, has explored some implications of the “share‐altering” technical change hypothesis with Cobb‐Douglas production functions in an aggregate growth model.…”

“…This paper proposes a novel theoretical approach, based on the idea of “share‐altering” technical change, to analyze skill and wage distributions in local labor markets. To this purpose, we model technical change as variations in the Cobb‐Douglas share parameters, as in Seater () and Zuleta (), and consider its effects within the spatial general equilibrium model of Roback ().…”

“…() and, in general, in this kind of literature, we abstract from implementation costs of new technologies. Such costs are instead considered in the growth analysis by Zuleta ().…”

Factor shares, inequality, and capital flows

“…In this article, I present a biased innovations model based on Zuleta () to study the effects of investment flows on inequality both between and within countries. For simplicity, I consider only two factors in the model, one reproducible K and one not reproducible L .…”