| Sumario: | The relative stability of aggregate labor's share constitutes one of the great
macroeconomic ratios. However, relative stability at the aggregate level masks the
unbalanced nature of industry labor's shares – the Kuznets stylized facts underlie those of Kaldor. We present a two-sector – one labor-only and the other using both capital and
labor – model of unbalanced economic development with induced innovation that can
rationalize these phenomena as well as several other empirical regularities of actual
economies. Specifically, the model features (i) one sector ("goods" production)
becoming increasingly capital-intensive over time; (ii) an increasing relative price and
share in total output of the labor-only sector ("services"); and (iii) diverging sectoral
labor's shares despite (iii) an aggregate labor's share that converges from above to a value between 0 and unity. Furthermore, the model (iv) supports either a neoclassical steadystate or long-run endogenous growth, giving it the potential to account for a wide range of real world development experiences.
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