Introduction to Modern Economic Growth substitution between capital and labor greater than would imply that production is possible without labor or without capital, which appears counterintuitive Now, recall that when σ < 1, factor-augmenting and factor-biased technologies are reversed Therefore, labor-augmenting technological change corresponds to capital-biased technological change Then the question becomes: under what circumstances would the economy generate relatively capital-biased technological change? And also, when will the equilibrium technology be sufficiently capital biased that it corresponds to Harrod-neutral technological change? The answer to the first question is straightforward What distinguishes capital from labor is the fact that it accumulates In other words, the neoclassical growth model, with some type of technological change, experiences continuous capital-deepening as K (t) /L increases This, combined with Proposition 15.3, immediately implies that technological change should be more labor-augmenting than capital augmenting We summarize this result in the next proposition, treating the increase in K (t) /L as a one-time increase and thus looking at the comparative statics of the BGP equilibrium (full equilibrium dynamics are investigated in the next two propositions) Proposition 15.12 In the baseline model of directed technological change with H (t) = K (t) as capital, if K (t) /L is increasing over time and σ < 1, then NK (t) /NL (t) will also increase over time as well Proof Equation (15.37) and σ < imply that an increase in K (t) /L will raise Ô NK (t) /NL (t) This result already gives us important economic insights The reasoning of directed technological change indicates that there are natural reasons for technology to be more labor augmenting than capital augmenting While this is encouraging, the next proposition shows that the results are not easy to reconcile with purely-labor augmenting technological change To state this result in the simplest possible way and to facilitate the analysis in the rest of this section, let us simplify the analysis and suppose that capital accumulates at an exogenous rate, i.e., (15.46) K˙ (t) = sK > K (t) 689