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Semieniuk, Gregor (2017) 'Piketty's Elasticity of Substitution: A Critique.' Review of Political Economy, 29 (1). pp. 64-79.

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This article examines Thomas Piketty’s explanation of a falling wage share. Piketty explains rising income inequality between labor and capital as a result of one parameter of a production function: an elasticity of substitution, σ, between labor and capital greater than one. This article reviews Piketty’s elasticity argument, which relies on a non-standard definition of capital. In light of the theory of land rent, it discusses why the non-standard capital definition is a measure of wealth, not capital and is problematic for estimating elasticities. It then presents simple long-run estimates of σ in constant elasticity of substitution functions for Piketty’s data as well as for a subset of his capital measure that comes closer to the standard definition of productive capital. The estimation results cast doubt on Piketty’s hypothesis that σ is greater than one.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Legacy Departments > Faculty of Law and Social Sciences > Department of Economics
ISSN: 14653982
DOI (Digital Object Identifier):
Date Deposited: 17 Dec 2016 16:45

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