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Inside the decline of the labor share: Technical change, market power, and structural change

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  • Feijoo Moreira, Sergio

Abstract

This paper documents substantial industry-level heterogeneity in the decline of the U.S. labor share and its main components: employment, wages, and value added. The decline is also contemporaneous with a strong process of structural change between manufacturing and services. I analyze both phenomena through the lens of a multi-sector model where sector-specific changes in market power and capital-biased technical change – the most prominent explanations for the declining labor share – also characterize the process of structural change between sectors. I show that increasing market power, which is pervasive across manufacturing and services, accounts for almost two-thirds of the decline in the labor share. Technical change explains the remaining third and is the fundamental driver of structural change between sectors.

Suggested Citation

  • Feijoo Moreira, Sergio, 2022. "Inside the decline of the labor share: Technical change, market power, and structural change," Journal of Economic Dynamics and Control, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:dyncon:v:145:y:2022:i:c:s016518892200269x
    DOI: 10.1016/j.jedc.2022.104566
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    More about this item

    Keywords

    Labor share decline; Capital-biased technical change; Market power; Structural change;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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