Capital-labor substitution and economic efficiency

doi:10.2307/1927286

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Capital-labor substitution and economic efficiency

Journal Article•DOI•

Capital-labor substitution and economic efficiency

Kenneth J. Arrow, Hollis B. Chenery, Bagicha S. Minhas, Robert M. Solow

01 Aug 1961-The Review of Economics and Statistics-Vol. 43, Iss: 3, pp 225-250

TL;DR: In this article, the authors proposed a method to improve the quality of the service provided by the service provider by using the information of the user's interaction with the provider and the provider.

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Abstract: Обсуждаются следующие темы: чистая теория производства, функциональное распределение дохода, технический прогресс, источники международных конкурентных преимуществ. Анализируются эластичность замещения между трудом и капиталом в обрабатывающей промышленности; производственные функции различного типа.

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Journal Article•DOI•

Impact of Education on Labor Efficiency

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Romesh Diwan

01 Jun 1971-Applied Economics

TL;DR: The impact of education on labor efficiency has been studied in this article, where it is shown that education can significantly improve the efficiency of the labor force and reduce the number of redundancies.

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Abstract: (1971). Impact of Education on Labor Efficiency. Applied Economics: Vol. 3, No. 2, pp. 127-135.

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4 citations

Journal Article•DOI•

Solution of the system of nonlinear PDEs characterizing CES property under quasi-homogeneity conditions

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Haila Alodan¹, Bang-Yen Chen², Sharief Deshmukh¹, Gabriel Eduard Vîlcu³•Institutions (3)

King Saud University¹, Michigan State University², University of Bucharest³

01 Dec 2021-Advances in Difference Equations

TL;DR: The constant elasticity of substitution (CES) is a basic property widely used in some areas of economics that involves a system of second-order nonlinear partial differential equations as mentioned in this paper.

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Abstract: The constant elasticity of substitution (CES for short) is a basic property widely used in some areas of economics that involves a system of second-order nonlinear partial differential equations. One of the most remarkable results in mathematical economics states that under homogeneity condition i.e. the production function is a homogeneous function of a certain degree, there are no other production models with the CES property apart from the famous Cobb–Douglas and Arrow–Chenery–Minhas–Solow production functions. In this paper we generalize this classification result to a much wider framework of production functions under quasi-homogeneity conditions, showing in particular the existence of three new classes of production models with the CES property.

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4 citations

Journal Article•DOI•

Measuring Mancur Olson: What is the Influence of Culture, Institutions and Policies on Economic Development?

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Tomáš Evan, Ilya Bolotov

11 Jun 2021

TL;DR: In this paper, the authors attempt to test the Big Bills Left on the Sidewalk conjecture using econometric modelling, combining and comparing it with a broadly defined orthodox production function in an indirect neoclassical notation.

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Abstract: Mancur Olson wrote his influential study Big Bills Left on the Sidewalk: Why Some Countries are Rich, and Others Poor in 1996. In his paper, Olson claimed that the differ-ences in economic development between countries are caused by only two factors: institutions and policies on the one hand and culture on the other. We attempt to test his conjecture using econometric modelling, combining and comparing it with a broadly defined orthodox production function in an indirect neoclassical notation (Solow-Minhas-Arrow-Chenery's SMAC framework). The "pseudo-production function" obtained is econometrically sound and of explanatory power similar to models including economic variables, although we find strong evidence of interdependence between capital-labour share and institutions and policies and culture. We consider the test, performed on panel data from 154 countries over five-year averages from 1980-2014, to be robust and consistent with Olson's ideas.

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4 citations

Cites background from "Capital-labor substitution and econ..."

...…other) function predicting income on the left-hand side, being methodologically backed by a very loose theoretical concept such as the SMAC framework (Arrow et al., 1961; Lu and Fletcher, 1968), seems to be the only option to test a conjecture such as Olson’s in a way which is compatible with…...
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...…allows us to compare the results with nearly all the most frequently used production functions under the umbrella of CES (constant elasticity of substitution) (Arrow et al., 1961) and its Lu-Fletcher extended version (a type of VES, variable elasticity of substitution; Lu and Fletcher, 1968)....
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Journal Article•

Equilibrium unemployment and investment under product and labour market imperfections

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Heikki Kauppi, Erkki Koskela, Rune Stenbacka

04 Mar 2004-Research Papers in Economics

TL;DR: In this paper, the implications of product market competition and investment for price setting, wage bargaining and thereby for equilibrium unemployment in an economy with product and labour market imperfections were studied. And they demonstrated how labour and product imperfections, characterized by the wage and price setting mark-ups, affect the optimal capital stock.

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Abstract: We study the implications of product market competition and investment for price setting, wage bargaining and thereby for equilibrium unemployment in an economy with product and labour market imperfections. We show that intensified product market competition will reduce equilibrium unemployment, whereas the effect of increased capital intensity is more complex. Higher capital intensity will decrease the equilibrium unemployment when the elasticity of substitution between capital and labour is less than one, while the reverse happens when this elasticity is higher than one but smaller than the elasticity of substitution between products. Finally, we demonstrate how labour and product market imperfections, characterized by the wage and price setting mark-ups, affect the optimal capital stock. Our findings raise important questions for future empirical research.

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4 citations

The Relationship Between Wages and the Capital-Labor Ratio: Finnish Evidence on the Production Function

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Mikael Juselius

01 Jan 2004

TL;DR: In this article, a positive empirical relationship between wages and the capital-labor share is established using Finnish manufacturing data, which is consistent with an elasticity of substitution above one.

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Abstract: In this paper, a positive empirical relationship between wages and the capital-labor share is established using Finnish manufacturing data. This relationship is consistent with a modeling approach for the Finnish economy that assumes a CES production function and imperfections in both product and labor markets. The popular Cobb-Douglas production function is inconsistent with the observed relationship. Moreover, the estimations are consistent with an elasticity of substitution above one. The results are further strengthened by a positive relationship between unemployment and the capital-labor share through its effect on the wage rate. The estimations also provide insights into the processes determining the output-labor ratio, capital-labor ratio and investments.

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4 citations

Cites background or methods from "Capital-labor substitution and econ..."

...The seminal contribution in this respect is Arrow et al. (1961), who derive the CES function and suggest one way of estimating the elasticity of substitution under the additional assumption of perfect competition. A more recent contribution is provided by Duffy and Papageorgiou (2000), who uses panel data on 82 countries over 28 years to estimate a CES specification....
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...For instance, assuming a more general CES (Constant Elasticity of Substitution) technology allows for endogenous growth (see for instance Jones and Manuelli (1990)) for some parameter values and multiple stable equilibrium configurations with respect to the labor share for others (see Azariadis (1996)). Also, in a recent paper Kauppi et al. (2004) establish a relationship between wages and the capital-labor share by assuming a CES production function coupled with imperfections in both labor and product markets....
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...The seminal contribution in this respect is Arrow et al. (1961), who derive the CES function and suggest one way of estimating the elasticity of substitution under the additional assumption of perfect competition....
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...This development has partly been due to the empirical observation that factor shares have not remained constant (see for example Bentolila and Saint-Paul (2003)) casting doubts on the validity of the popular Cobb-Douglas specification(1). More importantly, the revival of growth theory during the last decade (see Quah (1996) and Solow (1994)) makes the issue topical since different functional specifications can lead to different and richer theoretical results. For instance, assuming a more general CES (Constant Elasticity of Substitution) technology allows for endogenous growth (see for instance Jones and Manuelli (1990)) for some parameter values and multiple stable equilibrium configurations with respect to the labor share for others (see Azariadis (1996))....
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...(16)Arrow et al. (1961) show that b in the regression yt = a + bwt + t provides an estimate of the elasticity of substitution when labor and product markets are competitive....
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References

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Journal Article•DOI•

Technical change and the aggregate production function

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Robert M. Solow

01 Aug 1957-The Review of Economics and Statistics

TL;DR: In this article, the authors proposed a method to improve the performance of the system by using the information of the user's interaction with the system and the system itself, including the interaction between the two parties.

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Abstract: В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.

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10,850 citations

Journal Article•DOI•

ECONOMIC GROWTH and CAPITAL ACCUMULATION

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T. W. Swan¹•Institutions (1)

Australian National University¹

01 Nov 1956-Economic Record

3,961 citations

Book•

Resource and output trends in the United States since 1870

[...]

Moses Abramovitz¹•Institutions (1)

Stanford University¹

01 Jan 1956

TL;DR: In this paper, a very brief treatment of three questions relating to the history of our economic growth since the Civil War is given, namely: (1) How large has been the net increase of aggregate output per capita, and to what extent has this increase been obtained as a result of greater labor or capital input on the one hand and of a rise in productivity on the other? (2) Is there evidence of retardation, or conceivably acceleration, in the growth of per capita output? (3) Have there been fluctuations in the rate of growth of output, apart

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Abstract: Introduction This paper is a very brief treatment of three questions relating to the history of our economic growth since the Civil War: (1) How large has been the net increase of aggregate output per capita, and to what extent has this increase been obtained as a result of greater labor or capital input on the one hand and of a rise in productivity on the other? (2) Is there evidence of retardation, or conceivably acceleration, in the growth of per capita output? (3) Have there been fluctuations in the rate of growth of output, apart from the shortterm fluctuations of business cycles, and, if so, what is the significance of these swings? The answers to these three questions, to the extent that they can be given, represent, of course, only a tiny fraction of the historical experience relevant to the problems of growth. Even so, anyone acquainted with their complexity will realize that no one of them, much less all three, can be treated satisfactorily in a short space. I shall have to pronounce upon them somewhat arbitrarily. My ability to deal with them at all is a reflection of one of the more important, though one of the less obvious, of the many aspects of our growing wealth, namely, the accumulation of historical statistics in this country during the last generation. For the most part, the figures which I present or which underlie my qualitative statements are taken directly from tables of estimates of national product, labor force, productivity, and the like compiled by others.

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1,031 citations

Book•

Mathematical Analysis for Economists

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R. G. D. Allen

01 Jan 1938

926 citations

Journal Article•DOI•

International trade and the equalisation of factor prices

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Paul A. Samuelson¹•Institutions (1)