Question

1. Explain how a stable, constant Alpha (capital share of national income) supports the idea that growth benefits everyone.

Answer 1

Dear Student,

Constant capital share of national income supports the idea that growth benefits everyone in following ways :

Labor and capital are both inputs into the production process, but the income received by workers and capital-owners likely accrues to different economic classes of people, and so this constancy was reassuring to those who worry about workers’ evolving standards of living.

Economists focusing on the corporate sector have found that the labor share of income declined.First, for many types of income, it may be futile to separate labor and capital income.For example, many of those in the top of the income distribution have tremendous wealth that has been generated from streams of entrepreneurial income with both labor and capital elements. For example, Mark Zuckerberg’s wealth likely represents some combination of returns to his labor, his “human capital” (or knowledge), his risk-taking, and his ownership of capital (servers, office space, etc.) that have been invested in Facebook.

Second, the labor share alone is not a measure of inequality. While capital income is far more concentrated than labor income, the level of inequality depends on the distribution of labor income, the distribution of capital income, and the labor share..

Abstraction:

There are two main sources of economic growth: growth in the size of the workforce and growth in the productivity (output per hour worked) of that workforce. Either can increase the overall size of the economy but only strong productivity growth can increase per capita GDP and income. Productivity growth allows people to achieve a higher material standard of living without having to work more hours or to enjoy the same material standard of living while spending fewer hours in the paid labor force.

Thank You !!