Capital accumulation leads to declining labor income share in skill-based economy.
Capital accumulation can lead to a decrease in the share of income going to workers, even when capital and labor usually work well together. By looking at the skills of workers and how they can be substituted for each other, researchers found that this decline can happen. They used a method called the Morishima elasticity of substitution to figure out how different skills can be replaced by capital. The evidence they gathered supports the idea that as capital grows, workers might get a smaller piece of the income pie, even if they usually need each other to get the job done.