4.10.19

The Decline in Capital Efficiency and Labour Share



The labor share in the United States historically remained roughly stable, but in this century it significantly decreased.

The journal of the the London School of Economics Economics Department publishes in its last number a paper written by me and Francisco X. Lores (The Decline in Capital Efficiency and Labour Share)  in which we show that the post-war evolution of the labor share can be accurately accounted by the neoclassical growth model with perfect competition and variable and gross complementarity of capital and labor.

We argue that the reason of the decline in the U.S labor share was the strong fall in U.S. capital efficiency which caused a  large drop in the ratio of effective capital to effective labor.

Therefore, our results are opposite to the Piketty's wisdom according to which the decline in the US labor share was due to the increase in the ratio of capital to labor caused by the fast decline of the relative price of investment in an context in which both capital and labor are gross substitutes in production.


We proceed in the following way. First of all:

  • Using KLEMS data, we estimate the elasticity of substitution between capital and labor and we find that it is significantly negative, which means that both productive factors are gross complements.
Using our estimates of the elasticity of substitution, then

  • We calibrate and simulate a neoclassical growth model with a variable elasticity of substitution production function and three types of technological change: labour-augmenting, capital-augmenting and investment-specific. 
In this framework we find that:
  • The decline in US labour share was caused by a large decline in capital efficiency, which led to a decrease in the ratio of effective capital to effective labour.
  • Moreover, the decline in the relative price of investment contributed to reducing the fall in US labour share, while the increase in the economic depreciation rate of US fixed assets accounted for a small reduction in US labour share.

24.4.19

The costs of crime

                                                                                                                                                                                                                                                                                                                   


The Scandinavian Journal of Economics has published a work of mine in which I evaluate the costs of the crime. They are huge. 


I have analyzed  a sample of 94 countries for the year 2005, the value of the indexof business costs of crime relative to the United States ranks from 0.70(Iceland) to 4.79 (Venezuela); its average is 1.40, the standard deviation is 0.78, the average of the first decile is 0.73, and the average of the lastdecile is 3.21. 

According to my estimations: 

1) In the United States, US GDP per worker is 82.5 percent of the GDP per worker in the economy without predation, and US consumption per worker is 81.4 percent. Therefore, according to the model, the US welfare costs of crime represent a loss of 18.6 percent of consumption per worker and GDP per worker is reduced by 17.5 percent.

2) For a country in the average of the sample (i.e., with the value of the index at 1.40) predation reduces consumption per worker and GDP per worker by 25.1 and 23.8 percent, respectively. For a country in the average value of the last decile, consumption per worker and GDP worker are reduced by 57.8 percent and 55.9 percent, respectively

3) In the United States,78.6 percent of the reduction in long-run consumption per worker caused by an increase in predation is due to waste of resources, while 21.4 percent are deadweight losses. For a country in the sample average of the distribution of the index of business costs of crime, these percentages are 75.5 and 24.5 percent. However, for a country in the average of the last decile, these percentages are reversed as 21.5 and 78.5 percent.


I built a quality index of formal institutions securing property rights in each country using the following variables: judicial independence, impartial courts, protection of property rights, military interference in the rule of law and political process, integrity of the legal system, legal enforcement of contracts, regulatory restrictions on the sale of real property, and reliability of the police. The arithmetic average of these eight variables is calculated. 

The resulting index relative to the United States is used as a proxy of quality of formal institutions securing property rights in each country. It ranks from 1.18 (Finland) to 0.37 (Burundi); its average is 0.81, the standard deviation is 0.21, the average of the first decile is 1.15, and the average of the last decile is 0.47.

The results of my simulations show that improving the quality of formal institutions securing property rights can have a large positive impact on the productivity of countries at the bottom of the distribution. 

Therefore, the improvement of the quality of formal institutions securing propertyrights could be a successful development policy strongly enhancing productivity by reducing predatory activities. 

In particular: 

4) If the institutional quality index increases by one standard deviation, then, for a country with a value of the index equal to the average value of the last decile of its distribution, the ratio of business costs of predation to GDP decreases by 36 percent, while its GDP per worker increases by 23 percent TFP increases by 12 percent and the ratio of capital to GDP increases by 6 percent 

5) Therefore, most of the increase in GDP per worker is due to the increaseof TFP, not to the increase in the ratio of capital to GDP.



28.2.19

O devalar terrorista.


O terrorismo ten sido empregado polos governos de todo o mundo como escusa para limitar as liberdades dos cidadans. Os medios de comunicación destacan as novas que teñen que ver co terrorismo e a análise dos dados non parece xustificar tanta atención nin tanto recorte de liberdades. Ven de publicarse o Índice Global de Terrorismo con dados até o ano 2017 nel se pode comprobar a redución das mortes e ataques terroristas no mundo. Na Europa occidental de 216 mortes por terrorismo en 2016 pasouse a 81 mortes en 2017. Entre xaneiro e outubro de 2018 as mortes non chegaron a 10. 

14.1.19

Respetad nuestras libertades o nos vamos.

Mujeres saudís yendo a un partido de fútbol.

Rahaf Mohammed al-Qunun es el nombre de la chica saudí que huyó de su país con la intención de llegar a Australia para pedir asilo y que fue retenida en Tailandia hasta que el gobierno canadiense le concedió asilo. Su caso a tenido tal repercusión en Arabia Saudí que ha generado un movimiento entre las mujeres que amenazan con irse del país si no se respetan sus libertades.