LABOR- AND CAPITAL-AUGMENTING TECHNICAL CHANGE

I analyze an economy in which firms can undertake both labor- and capital-augmenting technological improvements. In the long run, the economy resembles the standard growth model with purely labor-augmenting technical change, and the share of labor in GDP is constant. Along the transition path, however, there is capital-augmenting technical change and factor shares change. Tax policy and changes in labor supply or savings typically change factor shares in the short run, but have no or little effect on the long-run factor distribution of income.