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Factor Substitution Possibilities, Labor Share Dynamics, and Inequality in an Age of Intangibles

Year: 2025

Type: article

Abstract: ABSTRACT We examine the economy‐wide degree of substitutability between intangible capital and other factor inputs in production using a large sample of advanced countries. In this context, we turn to studying the implications of intangible and tangible capital growth for labor income share dynamics. Compared to tangible capital, we find that intangible capital more strongly complements skilled labor. The analysis further indicates relative fungibility between tangible capital and a composite of intangible capital and skilled labor, in line with the rising prominence of knowledge‐intensive tasks and AI‐driven online platforms. The intrinsic nature of intangibles and their asymmetric effects across skilled and unskilled labor productivity based on our substitution elasticities suggest that intangible capital growth increases income inequality more aggressively.

Source: Review of Income and Wealth

DOI: 10.1111/roiw.12727

Author: Adnan Velic

Institution: Technological University Dublin

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, Reduced inequalities

Open Access status: hybrid

Estimated APC paid: $3,300