The Effects of Technical Change: Does Capital Aggregation Matter?
AbstractThis paper investigates the role of capital aggregation for quantifying the effects of technological
change. We particularly study the effects on aggregate output and on the division of income between capital and labor. We show that, for a given aggregate technological improvement, the effects on output and the labor share can be anywhere between very small (almost zero for the labor share) and substantial, depending on the source of technological change. Most importantly, the more concentrated technological imporvements are in factors that are highly substitutable with labor, the larger the effects on output and the labor share. Intuitively, this is because labor is effectively in fixed supply and is therefore a key limiting factor of growth in the presence of capital-labor complementarities. This insight is particularly importantin light of the recent interest in the effect of information and computing technology (ICT) on the aggregate labor share.