Endogenous Labor Share Cycles: Theory and Evidence

Based on long US time series we document a range of empirical properties of the labor's share of GDP.We identify its substantial medium-to-long run, pro-cylical swings and show that most of its variancelies beyond business-cycle frequencies. We explore the extent to which these empirical regularities can beexplained by a calibrated micro-founded, nonlinear growth model with normalized CES technology andendogenous labor- and capital augmenting technical change driven by purposeful directed R&D investments.We demonstrate that dynamic macroeconomic trade-offs created by arrivals of both types of newtechnologies can lead to prolonged swings in the labor share (and other model variables) due to oscillatoryconvergence to the balanced growth path as well as emergence of limit cycles via Hopf bifurcations. Bothpredictions are consistent with the empirical evidence.