Part 1 of 2
Aggregate Production Functions
Substitution between capital and labor, Cobb--Douglas and CES production, factor shares, technological change, output scale, and heterogeneous labor.
The first part of the course introduces the key economic concepts of how labor enters into production. We start with the canonical aggregate production function in which labor and capital enter as aggregate quantities. The key question there is how the elasticity of substitution between labor and capital affects the distribution of income between labor and capital. We then specialize this question to the most common functional forms, Cobb--Douglas and CES, and discuss their empirical relevance. We then open up the production function by considering the role of different types of labor for production. Again, the substitutability between those inputs plays a key role.