The Role of Labor Costs in Regional Capital Formation

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Abstract
High labor costs in large Midwestern metropolitan areas have significantly reduced their manufacturing capital stock. For the period 1974 to 1978, we estimated that sixteen metropolitan areas in the Midwest, taken together, had approximately $2.8 billion less capital stock than they would have had if their labor costs had been at the national average. This difference is equal to 4% of the capital stock in these areas. The results are simulated from the estimation of a labor demand equation which is derived from a Generalized Leontief cost function.

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