Working Paper: NBER ID: w7544
Authors: Daron Acemoglu
Abstract: I analyze an economy in which profit-maximizing firms 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 effect 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: No keywords provided
JEL Codes: O33; O14; O31; E25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technical change (O39) | labor share (D33) |
| taxes on capital income (H24) | labor share (short run) (D33) |
| taxes on capital income (H24) | labor share (medium to long run) (J39) |
| profit-maximizing incentives (L21) | labor-augmenting technical change (O49) |
| large share of capital in GDP (D33) | capital-augmenting technical change (O49) |
| capital-augmenting technical change (O49) | share of capital (D33) |
| capital-augmenting technical change (O49) | wage rate (J31) |
| minimum wages (J38) | labor share (short run) (D33) |
| minimum wages (J38) | unemployment (long run) (J64) |
| subsidies to wages (J38) | share of capital (initially) (D33) |
| subsidies to wages (J38) | share of capital (medium to long run) (D33) |