Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202764 
Authors: 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12418
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The accumulation principle suggests that complementarity between capital and labor forces the labor income share to rise in the presence of capital accumulation. The CES model estimates using data from 20 Japanese industries between 1970 and 2012 explain the same outcome but with substitutable factor inputs. To resolve this puzzle, this paper proposes a variable elasticity of substitution (VES-W) framework that embodies a variable elasticity of substitution and a share parameter as a non-linear function of the Weibull distribution of capital-labor ratio. Empirical findings support the choice of a variable elasticity of substitution. While the estimated structural parameters calibrate the actual output level and the movements in factor income shares reasonably well in both the CES and VES-W models, the VES-W model outcomes support the accumulation principle by achieving the same result but with complementary factor inputs.
Subjects: 
substitution elasticity
labor income share
production function parameters
JEL: 
E21
E22
E25
Document Type: 
Working Paper

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