Elasticity of substitution and social conflict: a structuralist note on Piketty's capital in the twenty-first century

Abstract

This paper presents a structuralist analysis of the elasticity of substitution between capital and labour, with an application to the US economy. The paper shows how the elasticity of substitution is an aggregated residual parameter, as well as how fluctuations of it can be explained in terms of technological, distributive, demographic and demand shocks. Then, based on a 2x2 dynamical model for the wage share of income and the employment rate, the paper analyses Thomas Piketty's theoretical proposition that the functional distribution of income may not be stationary.