Can Capital Deepening Explain the Global Decline in Labor's Share?
We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substituti...
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| creator | Glover, Andrew Short, Jacob |
| description | We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and (a proxy for) the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was partly due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth. |
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Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and (a proxy for) the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was partly due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth.</description><identifier>ISSN: 1701-9397</identifier><identifier>OCLC: 1083760982</identifier><language>eng</language><publisher>Ottawa, ON, CA: Bank of Canada</publisher><subject>Bias of an estimator ; Economics ; Economy ; Economy, business and finance ; Errors and residuals ; Estimator ; Instrumental variables estimation ; Interest ; Interest rate ; Labour economics ; Linear regression ; Macro economics ; Mathematics ; Ols ; Omitted variable bias ; Ordinary least squares ; Positively correlated ; Prices ; Regression ; Regression analysis ; Regression estimator ; Robust regression ; Robustness ; S.e ; Science and technology ; Social sciences ; Time series</subject><ispartof>Can Capital Deepening Explain the Global Decline in Labor's Share?, 2019, Vol.2019-3</ispartof><tpages>1 online resource (48 pages).</tpages><format>1 online resource (48 pages).</format><woscitedreferencessubscribed>false</woscitedreferencessubscribed><relation>Staff Working Paper/Document de travail du personnel</relation></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>306,780,784,786</link.rule.ids></links><search><creatorcontrib>Glover, Andrew</creatorcontrib><creatorcontrib>Short, Jacob</creatorcontrib><creatorcontrib>Coherent Digital (Firm)</creatorcontrib><creatorcontrib>Canadian Electronic Library (Firm)</creatorcontrib><title>Can Capital Deepening Explain the Global Decline in Labor's Share?</title><title>Can Capital Deepening Explain the Global Decline in Labor's Share?</title><description>We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and (a proxy for) the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was partly due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth.</description><subject>Bias of an estimator</subject><subject>Economics</subject><subject>Economy</subject><subject>Economy, business and finance</subject><subject>Errors and residuals</subject><subject>Estimator</subject><subject>Instrumental variables estimation</subject><subject>Interest</subject><subject>Interest rate</subject><subject>Labour economics</subject><subject>Linear regression</subject><subject>Macro economics</subject><subject>Mathematics</subject><subject>Ols</subject><subject>Omitted variable bias</subject><subject>Ordinary least squares</subject><subject>Positively correlated</subject><subject>Prices</subject><subject>Regression</subject><subject>Regression analysis</subject><subject>Regression estimator</subject><subject>Robust regression</subject><subject>Robustness</subject><subject>S.e</subject><subject>Science and technology</subject><subject>Social sciences</subject><subject>Time series</subject><issn>1701-9397</issn><fulltext>true</fulltext><rsrctype>book</rsrctype><creationdate>2019</creationdate><recordtype>book</recordtype><recordid>eNotjM1Kw0AURmehYq19h1npKnDnTjI_K9FYqxBwoa7DneROOzCmISmib2_RfpsD58B3JhbKgiq89vZCXClw2hrwDi_Fap5TAESNXlm7EA81DbKmMR0oy0fmkYc0bOX6e8yUBnnYsdzkffiLXU4Dy6NtKOyn21m-7Wjiu2txHinPvDpxKT6e1u_1c9G8bl7q-6boEMEXVQxsjmPdW9K6sgSlMRAdAehApcdY9oqjccp6z-i488p4JopGlyXppbj5_-04t-OUPmn6aRHaCqBVWHls-636Qqd_ARxiRjk</recordid><startdate>2019</startdate><enddate>2019</enddate><creator>Glover, Andrew</creator><creator>Short, Jacob</creator><general>Bank of Canada</general><scope>AAJPT</scope></search><sort><creationdate>2019</creationdate><title>Can Capital Deepening Explain the Global Decline in Labor's Share?</title><author>Glover, Andrew ; Short, Jacob</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c2209-5fbe6666e3d7a3357a04660f8a003ba492f4d1ef681799e28ec9169eaaf6344a3</frbrgroupid><rsrctype>books</rsrctype><prefilter>books</prefilter><language>eng</language><creationdate>2019</creationdate><topic>Bias of an estimator</topic><topic>Economics</topic><topic>Economy</topic><topic>Economy, business and finance</topic><topic>Errors and residuals</topic><topic>Estimator</topic><topic>Instrumental variables estimation</topic><topic>Interest</topic><topic>Interest rate</topic><topic>Labour economics</topic><topic>Linear regression</topic><topic>Macro economics</topic><topic>Mathematics</topic><topic>Ols</topic><topic>Omitted variable bias</topic><topic>Ordinary least squares</topic><topic>Positively correlated</topic><topic>Prices</topic><topic>Regression</topic><topic>Regression analysis</topic><topic>Regression estimator</topic><topic>Robust regression</topic><topic>Robustness</topic><topic>S.e</topic><topic>Science and technology</topic><topic>Social sciences</topic><topic>Time series</topic><toplevel>online_resources</toplevel><creatorcontrib>Glover, Andrew</creatorcontrib><creatorcontrib>Short, Jacob</creatorcontrib><creatorcontrib>Coherent Digital (Firm)</creatorcontrib><creatorcontrib>Canadian Electronic Library (Firm)</creatorcontrib><collection>Canada Commons: Books & Documents</collection></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Glover, Andrew</au><au>Short, Jacob</au><aucorp>Coherent Digital (Firm)</aucorp><aucorp>Canadian Electronic Library (Firm)</aucorp><format>book</format><genre>book</genre><ristype>BOOK</ristype><atitle>Can Capital Deepening Explain the Global Decline in Labor's Share?</atitle><btitle>Can Capital Deepening Explain the Global Decline in Labor's Share?</btitle><seriestitle>Staff Working Paper/Document de travail du personnel</seriestitle><date>2019</date><risdate>2019</risdate><volume>2019-3</volume><issn>1701-9397</issn><abstract>We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and (a proxy for) the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was partly due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth.</abstract><cop>Ottawa, ON, CA</cop><pub>Bank of Canada</pub><oclcid>1083760982</oclcid><tpages>1 online resource (48 pages).</tpages></addata></record> |
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| identifier | ISSN: 1701-9397 |
| ispartof | Can Capital Deepening Explain the Global Decline in Labor's Share?, 2019, Vol.2019-3 |
| issn | 1701-9397 |
| language | eng |
| recordid | cdi_cel_primary_20_500_12592_dg1v28 |
| source | EZB-FREE-00999 freely available EZB journals |
| subjects | Bias of an estimator Economics Economy Economy, business and finance Errors and residuals Estimator Instrumental variables estimation Interest Interest rate Labour economics Linear regression Macro economics Mathematics Ols Omitted variable bias Ordinary least squares Positively correlated Prices Regression Regression analysis Regression estimator Robust regression Robustness S.e Science and technology Social sciences Time series |
| title | Can Capital Deepening Explain the Global Decline in Labor's Share? |
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