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- Title
THE THEORY OF RELATIVE SHARES: COMMENT.
- Authors
Bell, Frederick W.
- Abstract
This article presents the author's comments on a paper by Lowell E. Gallaway about the short-run behavior of income shares. The mystery of functional income distribution has confounded many able economists and has led to a myriad of theories, speculations and empirical investigations concerning the behavior of relative income shares. Gallaway argues that at the macro level changes in the ratio of investment to income are negatively correlated with changes in labor's share of private income. This theory, which has been advanced by Kaldor, hinges on the marginal propensity to save of proprietors being larger than that for workers. However, Gallaway states that the short-run behavior of income shares may have micro-economic rather than macro-economic roots. The fall in real wages in the expansion phase of the business cycle induces labor-capital substitution. If the sectoral elasticities are less than unity, labor's share will fall with a rise in labor intensity. The rise in real wages in the contraction phase reverses the above process and labor's share will rise. It must be remembered that these relationships imply constant returns to scale. If his theory is to be accepted, we must first be sure of the validity of the assumptions employed. Although we have played the neoclassical game with Gallaway other explanations of the behavior of relative shares seem more realistic.
- Subjects
INCOME; INCOME inequality; INVESTMENTS; LABOR; ECONOMICS
- Publication
Quarterly Journal of Economics, 1965, Vol 79, Issue 4, p671
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1880661