Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach

By R. Klump, Peter Mcadam, Alpo Willman. Review of Economics and Statistics, 2007

412 citations recorded by the source corpus.

Using a normalized CES function with factor-augmenting technical progress, we estimate a supply-side system of the U.S. economy from 1953 to 1998. Avoiding potential estimation biases that may have occurred in earlier studies and putting a high emphasis on data consistency, we obtain robust results not only for the aggregate elasticity of substitution but also for the parameters of labor and capital augmenting technical change. We find that the elasticity of substitution is significantly below unity and that technical progress shows an asymmetrical pattern where the growth of labor-augmenting technical progress is exponential, while that of capital is hyperbolic or logarithmic.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/31eb67d2d07725226382a829e5b4522af1d9c235

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Citations in the corpus

The Normalized CES Production Function: Theory and Empirics (2011, positive): “Indeed, there is now mounting empirical evidence that aggregate production is better characterized by a non-unitary elasticity of substitution (rather than unitary or above unitary), e.g., Chirinko et al. (1999), Klump et al. (2007a), León-Ledesma et al. (2010a).”
On Estimation of the CES Production Function - Revisited (2012, methodology): “…is estimated in log or levels (see Sun et al., 2011); the applied estimation method (e.g. the Poisson pseudomaximum likelihood estimation, see Sun et al., 2011), and which extensions of the CES functions are used (e.g. Hicks neutral or factor augmented technical progress, see Klump et al., 2007).”
Understanding labour income share dynamics in Europe (2009, background): “The paths for capital and labour-augmenting technical progress are consistent with Klump et al. (2007) (see Table 4 in p.108 of the referred paper), which is one recent work attempting to quantify biased technological progress in the euro area over the period 1970- 2003, i.e. the same period and…”
Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account (2015, methodology): “Klump et al. (2007) use normalized production functions as recommended by Klump and De La Grandville (2000).”
Identifying the Elasticity of Substitution with Biased Technical Change (2010, methodology): “The importance of explicitly normalizing CES functions was discovered by La Grandville (1989), further explored by Klump and de La Grandville (2000), Klump and Preissler (2000), La Grandville and Solow (2006), and rst implemented empirically by Klump et al. (2007).”
Getting Normalization Right: Dealing with ‘Dimensional Constants’ in Macroeconomics (2012, background): “Recently there is an increasingly empirical evidence going in favour of CES production functions, in particular at business cycle frequencies, with elasticity of substitution well below unity (e.g., Klump et al. (2007), Chirinko (2008) and León-Ledesma et al. (2010)).”