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Can Labor Supply Affect Potential Growth Rate?
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TitleCan Labor Supply Affect Potential Growth Rate?  
AuthorDing Shouhai  
OrganizationPointSchool of Agricultural Economics and Rural Development, Renmin university of China 
Key WordsLabor Supply; Potential Growth Rate; Bound Variable; Turning  
AbstractThe article is to analyze the efftcet of labor supply on potential growth rate. Theoretical analysis proves potential growth rate doesn’t necessarily depend on capital and labor potential. If labor supply is unlimited, potential growth rate only depends on capital potential and has noting to do with labor potential. As a checking method, if potential growth rate only depends on capital potential, output gap can only rensult in the fluctuation of capital price in the same direction, but can’t result in wage fluctuation in the same direction. Only when potential growth rate depends on both capital and labor potential, can output gap result in the fluctuation of capital price and wage in the same direction simultaneously, which makes the effect of output gap on product price stronger than in former condition. With a improved econometrical method about output gap, we used China macroeconomic panal data during 1992-2009 to find that the effect of output gap on price was strengthened from 2004, and before 2004 output gap could only affect the price of capital in the same direction but hereafter it could also affect wage in the same direction. This conclusion proves that China potential output is turning from unilateral restriction of capital to dual restriction of capita and labor. Further analysis proves 2004 is the true turning point. 
Serial NumberWP258 
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