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Technological change and the labor share of output: Consider an economy with a CES production function of the form: Yt = [Kt + (1 )(AtLt)]1
Technological change and the labor share of output: Consider an economy with a CES production function of the form: Yt = [Kt + (1 )(AtLt)]1 for = 0 = Kt(AtLt)1 for = 0 where 1. Here, changes in At captures labor-augmenting technological change, as in the standard Solow model. For simplicity, assume that labor is fixed (i.e. there is no population growth). Let Wt denote the real wage and Rtk denote the rental rate on capital. Assume that firms in the economy choose capital and labor to maximize profits: t = Y t W t L t R tk K t
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