Economic growth and the functional distribution of income: A labor share Kuznets curve

Mainstream economics has until recently considered labor share as constant. However, early empirical evidence shows that labor share increased during the last decades of the nineteenth century and the first half of the twentieth century, and more recent empirical evidence shows that it has been declining since the 1980s in developed countries. This paper argues that the functional distribution of income is a function of the level of development of the economy, with labor share increasing in low income economies and decreasing for high levels of income. We test for the existence of a Kuznets curve for labor share using Penn World Table version 9.1 data for the period 1980–2017 for 50 developed and developing countries. We find the existence of an inverted U-shaped relationship between labor share and income, where the turning point is around $8,650 per capita (in 2011 dollars).