The labour-share decrease and the technological-knowledge increase

ABSTRACT

We extend the R&D-growth literature by considering an endogenous labour share of the aggregate income to analyse the effects on macroeconomic aggregates. Up to the stable and unique steady-state, the share of skilled workers in the R&D sector first has an instantaneous drop and then starts to increase, the economic-growth rate and the skill-premium increase, and the labour share of the aggregate income decreases due to automation.

KEYWORDS:

• Labour share
• wages
• economic growth

JEL CLASSIFICATION:

• J31
• O31
• O33.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Another way to specify the labour share of aggregate income ($LS$) with similar results is the following. Since $LS=\frac{wL}{Y}$, $P_Y=1$, and $L=L_H+L_L$, we have $\alpha +\beta =\frac{w}{Y}(L_H+L_L)=LS(1-u)s+LS(1-s)$, where $\alpha =LS(1-s)$ and $\beta =LS(1-u)s$. If we normalize $w_L=1$, then $\alpha =LS(1-s)$ and $\beta =LS-\alpha$. With the $LS$ being defined as $LS=LS(0)+l{g}_N$, where $l<0$ is the $LS$ sensitivity to the technological-knowledge growth. With this approach we would depend on fewer parameters and it would be easy to find a reasonable value for $l$ in the literature. Since the results with this definition were similar, we decided to follow our approach to avoid the normalization of $w_L$.