Cost share-induced technological change and Kaldor’s stylized facts

In 1961, in a well-known paper, Nicholas Kaldor introduced six “stylized facts”, of which the first four are: rising labor productivity and output; rising capital per worker; a steady rate of profit; and steady capital-output ratios. The last two imply a steady profit share, and thus a steady wage share. However, shortly after the publication of Kaldor’s paper, the wage share rose briefly in many high-income countries and then began to fall, a trend that continues today.

This article is a contribution to the literature since then that has focused on the intersection between growth, distribution and technological change. It presents a theory of cost-share induced technological change, an idea first proposed in 1932 by British economist John R. Hicks. We show that when combined with a price and wage-setting regime that leaves the profit and wage shares fixed, the theory is consistent with Marx-biased technological change (although other outcomes are possible). A regime of target-return pricing generates a stable dynamic with Harrod-neutral technological change as the equilibrium position, while allowing for substantial variation.

Read an earlier, related paper