Increasing Returns to Scale and Declining Labor Share in the Information Economy

This chapter analyzes the influence of information and communication technologyInformation and Communication Technology (ICT) (ICT) on the macroeconomy, resulting in the emergence of big dataData and subsequently improving firm profitability. It is important to note that some information companies, such as GAFAMGoogle, Apple, Facebook, Amazon, and Microsoft (GAFAM) in the U.S. economy, have shown significant profits and rapid global expansion, indicating the prevalence of increasing returns to scaleIncreasing return(s) to scale. The developed model considers information as a crucial production factor and reveals two economic scenarios: the poverty trapPoverty trap and sustained growth. The study features two sectors: the final goods sector with constant returns to scaleConstant returns to scale and the information sectorInformation sector with increasing returns to scale technology. The research uncovers a consistent decline in labor sharesDecline in labor share and an increase in the capital-output ratio during perpetual growthPerpetual growth, which is in consistence with previous studies. The study indicates that government policies, such as reducing income taxes and relaxing information protection regulations along the threshold path, could help the economy escape the poverty trapPoverty trap.