Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/211888
Authors: 
Ripatti, Antti
Vilmunen, Jouko
Year of Publication: 
2001
Series/Report no.: 
Bank of Finland Discussion Papers No. 10/2001
Abstract: 
The study demonstrates that the decline in the labour share in Finland can not be explained by the Cobb-Douglas production function.Instead, we propose an approach based on the constant-elasticity-of-substitution (CES) production function with labour- and capital-augmenting technical progress.The model is augmented by imperfect competition in the output market.According to the empirical results based on estimation of the first-order-conditions, the technical elasticity of substitution is significantly less than unity (0.6) and hence the Cobb-Douglas production function is rejected.The growth rate of the estimated labour-augmenting technical progress has decreased in recent years, which is not consistent with the 'new-economy' hypothesis. Capital-augmenting technical trend has exploded during the same period, which provides a possible explanation for the rapid growth of the Solow residual.The main contributing factor behind the declining labour share is, however, the increasing mark-up.
Subjects: 
production function
elasticity of technical substitution
input-augmenting technical progress
new economy
Persistent Identifier of the first edition: 
ISBN: 
951-686-721-9
Document Type: 
Working Paper

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