Micro Data and Macro Technology

Ezra Oberfield, Devesh Raval

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

We develop a framework to estimate the aggregate capital-labor elasticity of substitution by aggregating the actions of individual plants. The aggregate elasticity reflects substitution within plants and reallocation across plants; the extent of heterogeneity in capital intensities determines their relative importance. We use micro data on the cross-section of plants to build up to the aggregate elasticity at a point in time. Interpreting our econometric estimates through the lens of several different models, we find that the aggregate elasticity for the U.S. manufacturing sector is in the range of 0.5–0.7, and has declined slightly since 1970. We use our estimates to measure the bias of technical change and assess the decline in labor's share of income in the U.S. manufacturing sector. Mechanisms that rely on changes in the relative supply of factors, such as an acceleration of capital accumulation, cannot account for the decline.

Original languageEnglish (US)
Pages (from-to)703-732
Number of pages30
JournalEconometrica
Volume89
Issue number2
DOIs
StatePublished - Mar 2021

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Elasticity of substitution
  • aggregation
  • bias of technical change
  • labor share

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