The Elasticity of Aggregate Output with Respect to Capital and Labor

Posted by D. Vollrath on April 01, 2021 · 1 min read

Abstract: I estimate the elasticity of GDP with respect to aggregate capital and labor using industry-specific cost structures and without assuming an aggregate production function exists. Different assumptions about industry capital costs provide upper and lower bounds for the elasticities. In the U.S. from 1948-1995 the capital elasticity bounds were 0.18-0.33, and rose to 0.21-0.39 in 1995-2018. Excluding housing and government or de-capitalizing intellectual property lowers the capital elasticity bounds. Elasticities are similar in other OECD countries from 2005-2015. Based on these boundaries for the capital elasticity, common estimates of total factor productivity growth represent a lower bound.