Labour-augmenting technical change data for alternative elasticities of substitution, growth, slowdown, and distribution dynamics
Thomas Ziesemer
#2021-003
We solve the standard production function with constant elasticity of
substitution (CES) for its labour augmenting technology term. We make
capital stock data and insert them together with data from Penn World
Tables (PWT9.1). This provides labour augmenting technology levels and
growth rates for alternative elasticities of substitution for 70
countries, 1950-2017. The percentage growth rates of labour-augmenting
technical change (LATC) are shown to fall over time (productivity
slowdown) for all elasticity values in a panel data analysis. They
converge to a panel average of 2.67% and 1% depending on the inclusion
of human capital and the elasticity of substitution assumed. The
standard growth result of a GDP growth rate equal to that of LATC and
labour input holds only for LATC based on low elasticities of
substitution indicating that the economies are not in steady-states. The
correlation of LATC growth rates with total factor productivity growth
from PWT9.1 is strongest (0.893) for LATC data based on an elasticity of
substitution of 0.8. Matching the labour/capital share ratios from CES
functions with those of PWT9.1 reveals a range of elasticities of
substitution for each country, mostly between 0.8 and 1.2 or somewhat
lower for developing countries. If the MPL-to-wage ratio is 1.6, the
elasticities of substitution vary around 0.8. Using the human-capital
corrected LATC growth with CES = 0.8, 13 of 69 countries have a
productivity slowdown defined as growth rate below mean in the long run;
the USA is not among them indicating that the US productivity slowdown
is mainly one of human capital. Dynamics of coefficient of variation and
kernel density distributions for LATC growth rates shows that there is
neither technological convergence nor divergence.
Keywords: technical change, growth, productivity slowdown, convergence
JEL Classification: O47