- Labor and Capital-Augmenting Technical...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
January 19, 2000. Labor- and Capital-Augmenting Technical Change ¤ Daron Acemoglu y Abstract I analyze an economy in which pro…t-maximizing …rms can undertake both labor- or capital-augmenting technological improvements. In the long run, the economy looks like the standard growth model with purely labor-augmenting technical change, and the share of labor in GDP is constant. Along the transition path, however, there is capital- augmenting technical change and factor shares change. A range of policies may have counterintuitive implications due to their e¤ect on the direction of technical change. For example, taxes on capital income reduce the labor share in the short run, but increase it in the medium/long run. Keywords: Economic Growth, Endogenous Growth, Factor Shares, Technical Change. JEL Classi…cation: O33, O14, O31, E25. ¤ I thank Manuel Amador, Abhijit Banarjee, Olivier Blanchard, and Jaume Ventura for useful com- ments. y Massachusetts Institute of Technology, Department of Economics, E52-371, Cambridge, MA 02319; e-mail: [email protected] 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
I. Introduction Over the past hundred and …fty years of growth, the prices of the two key factors, labor and capital, have behaved very di¤erently. While the wage rate, the rental price of labor, has increased at a rapid rate, the interest-rate, the rental price of capital, has re- mained approximately constant. This pattern appears remarkably stable across countries. Almost all models of growth and capital accumulation, of both endogenous and exogenous types, confront this fact using a special assumption on the direction of technical change : technical progress is assumed to be purely labor-augmenting. 1 More speci…cally, consider an aggregate production function of the form Y = F ( MK;NL ) where K is capital, and L is labor. The assumption of labor-augmenting technical change implies that new technologies only increase N , and do not a¤ect M —or in other words, technical progress shifts the isoquants in a manner parallel to the labor axis. There is no obvious reason, however, why this should be so. Pro…t maximizing …rms could invent or adopt technologies that increase M as well as N . Although starting with Romer’s (1986) and Lucas’ (1988) contributions a large literature has investigated the determinants of technological progress and growth, the direction of technical change—the reason why all progress takes the form of increases in N —has received little attention. In this paper, I investigate this question. I show that in a standard model of endoge- nous growth, where …rms invest in capital- and labor-augmenting technical change, all technical progress will be labor-augmenting along the balanced growth path. Therefore, given the usual assumptions for endogenous growth, the result that technical change will be purely labor-augmenting follows from pro…t maximizing incentives. Although in the
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 24 - Labor and Capital-Augmenting Technical...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online