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The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration

Gene M. Grossman, Elhanan Helpman, Ezra Oberfield, Thomas Sampson

NBER Working Paper No. 23853
Issued in September 2017
NBER Program(s):Economic Fluctuations and Growth

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 postwar 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 U.S. labor share.

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Document Object Identifier (DOI): 10.3386/w23853

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