Micro Data and Macro Technology / Ezra Oberfield, Devesh Raval.

Format:

Book

Author/Creator:

Oberfield, Ezra.

Contributor:

National Bureau of Economic Research.

Raval, Devesh.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20452.

NBER working paper series no. w20452

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

We develop a framework to estimate the aggregate capital-labor elasticity of substitution by aggregating the actions of individual plants, and use it to assess the decline in labor's share of income in the US manufacturing sector. The aggregate elasticity reflects substitution within plants and reallocation across plants; the extent of heterogeneity in capital intensities determines their relative importance. We use micro data on the cross-section of plants to build up to the aggregate elasticity at a point in time. Our approach places no assumptions on the evolution of technology, so we can separately identify shifts in technology and changes in response to factor prices. We find that the aggregate elasticity for the US manufacturing sector has been stable since 1970 at about 0.7. Mechanisms that work solely through factor prices cannot account for the labor share's decline. Finally, the aggregate elasticity is substantially higher in less-developed countries.

Notes:

Print version record

September 2014.