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Abstract:

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CEP Discussion Paper
The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration
Gene M. Grossman, Elhanan Helpman, Ezra Oberfield and Thomas Sampson October 2017
Paper No' CEPDP1504:
Full Paper (pdf)

JEL Classification: O40; E25


Tags: neoclassical growth; balanced growth; technological progress; capital-skill complementarity; labor share; capital share

We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early post-war period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the US labor share.