Arbeitspapier
What determines the elasticity of substitution between capital and labor? A literature review
This paper provides the first comprehensive review of the empirical and theoretical literature on the determinants of the elasticity of substitution between capital and labor. Our focus is on the two-input constant elasticity of substitution (CES) production function. By example of the U.S., we highlight the distinctive heterogeneity in empirical estimates of σ at both the aggregate and industrial level and discuss potential methodological explanations for this variation. The main part of this survey then focuses on the determinants of σ. We first review several approaches to the microfoundation of production functions, especially the CES production function. Second, we outline the construction of an aggregate elasticity of substitution (AES) in a multi-sectoral framework and investigate its dependence on underlying sectoral elasticities. Third, we discuss the influence of the institutional framework on the determination of σ. The concluding section of this review identifies a number of potential empirical and theoretical avenues for future research. Overall, we demonstrate that the effective elasticity of substitution (EES), which is typically estimated in empirical studies, is generally not an immutable deep parameter but depends on a multitude of technological, non-technological and institutional determinants.
- Sprache
-
Englisch
- Erschienen in
-
Series: DIW Discussion Papers ; No. 1784
- Klassifikation
-
Wirtschaft
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Macroeconomics: Production
Industrialization; Manufacturing and Service Industries; Choice of Technology
Economic Growth and Aggregate Productivity: General
- Thema
-
elasticity of substitution
aggregate elasticity
capital
labor
economic growth
microfoundation
Cobb-Douglas and CES production function
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Knoblach, Michael
Stöckl, Fabian
- Ereignis
-
Veröffentlichung
- (wer)
-
Deutsches Institut für Wirtschaftsforschung (DIW)
- (wo)
-
Berlin
- (wann)
-
2019
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Knoblach, Michael
- Stöckl, Fabian
- Deutsches Institut für Wirtschaftsforschung (DIW)
Entstanden
- 2019
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