The constancy of the elasticity of factor substitution (σ) makes its role as a driver of the labor income share exogenous. The constant elasticity of substitution (CES) (Arrow et al., 1961) production function has predominantly been used to support this causal relationship. This paper argues...

The accumulation principle suggests that complementarity between capital and labor forces the labor income share to rise in the presence of capital accumulation. The CES model estimates using data from 20 Japanese industries between 1970 and 2012 explain the same outcome but with substitutable...

The relationship between a declining labor income share and a falling relative price of capital requires capital and labor to be gross substitutes at the aggregate level (i.e., σ-Agg1). We argue that this restriction can be relaxed if we distinguish labor by skills and identify differential...

Despite its long pedigree, studies on the role of the substitution elasticity between capital and labor mostly assume a homogeneous labor market. This paper extends this literature by considering a heterogeneous labor market with capital-skill complementarity. Technological advancement, global...

The role of capital accumulation as a driver of the labor income share requires capital and labor to be substitutes, which appears paradoxical in a world predominantly characterized by complementarity between capital and labor. This paper argues that the composition of skills in the labor force...