Recent Declines in Labor’s Share in US Income: A Preliminary Neoclassical Account

Recent Declines in Labor’s Share in US Income: A Preliminary Neoclassical Account. Robert Lawrence, June 2015, Paper. “As shown in the 1930s by Hicks and Robinson, the elasticity of substitution is a key parameter that captures whether capital and labor are gross complements or substitutes. Establishing the magnitude of s is vital, not only for explaining changes in the distribution of income between factors but also for undertaking policy measures to influence it. Several papers have explained the recent decline in labor’s share in income by claiming that (elasticity of substitution) is greater than 1 and that there has been capital deepening…”