Published online by Cambridge University Press: 27 June 2016
Is there an economic justification for why technical change is by assumption labor-augmenting in dynamic macroeconomics? The literature on the endogenous choice of capital- and labor-augmenting technical change finds that technical change is purely labor-augmenting in steady state. The present paper shows that this finding is mainly an artifact of the underlying mathematical models. To make this point, Uzawa's steady-state growth theorem is generalized to a neoclassical economy that, besides consumption and capital accumulation, uses current output to create technical progress or to manufacture intermediates. The generalized steady-state growth theorem is shown to encompass four models of endogenous capital- and labor-augmenting technical change and the typical model of the induced innovations literature of the 1960s.
This paper is a revised and extended version of my CESifo Working Paper Irmen (2013). Financial support from the University of Luxembourg under the program “Agecon C - Population Aging: An Exploration of its Effect on Economic Performance and Culture” is gratefully acknowledged. I would like to thank two anonymous referees, Anastasia Litina, Amer Tabaković, Gautam Tripathi, Bertrand Wigniolle, and Benteng Zou for helpful comments.