Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/183324
Authors: 
Growiec, Jakub
McAdam, Peter
Mućk, Jakub
Year of Publication: 
2018
Series/Report no.: 
ECB Working Paper 2142
Abstract: 
Labor's share of income has attracted interest in recent years reflecting its apparent decline. These falls, witnessed across many countries, are usually deemed undesirable. Any such assertion, however, begs the question of what is the socially optimal labor share. We address this question using a micro-founded endogenous growth model calibrated on US data. We find that in our central calibration the socially optimal labor share is 17% (11 pp) above the decentralized equilibrium, calibrated to match the average observed in history. We also study the dependence of both long-run growth equilibria on model parameters and relate our results to Piketty's "laws of Capitalism". Finally, we demonstrate that cyclical movements in factor income shares are socially optimal and that the decentralized equilibrium typically does not generate excess volatility.
Subjects: 
Labor income share
Endogenous growth
Factor augmenting endogenous technical change
Social optimum
Decentralized allocation
JEL: 
O33
O41
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3247-9
Document Type: 
Working Paper

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