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The Global Decline of the Labor Share

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  • Brent Neiman

Abstract

The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares, such as increasing profits, capital-augmenting technology growth, and the changing skill composition of the labor force. We highlight the implications of this explanation for welfare and macroeconomic dynamics. JEL Codes: E21, E22, E25. Copyright 2013, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 129 (2013)
Issue (Month): 1 ()
Pages: 61-103

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Handle: RePEc:oup:qjecon:v:129:y:2013:i:1:p:61-103

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  1. Loukas Karabarbounis & Brent Neiman, 2012. "Declining Labor Shares and the Global Rise of Corporate Saving," NBER Working Papers 18154, National Bureau of Economic Research, Inc.
  2. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 568, China Economics and Management Academy, Central University of Finance and Economics.
  3. Miguel A. Le�n-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, American Economic Association, vol. 100(4), pages 1330-57, September.
  4. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(2), pages 458-474, April.
  5. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 562-585, June.
  6. Francisco Rodriguez & Arjun Jayadev, 2010. "The Declining Labor Share of Income," Human Development Research Papers (2009 to present), Human Development Report Office (HDRO), United Nations Development Programme (UNDP) HDRP-2010-36, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
  7. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 87-120, March.
  9. John Fernald & Brent Neiman, 2006. "Measuring the Miracle: Market Imperfections and Asia's Growth Experience," 2006 Meeting Papers, Society for Economic Dynamics 785, Society for Economic Dynamics.
  10. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, Elsevier, vol. 46(6), pages 963-991, June.
  11. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(1), pages 93-121, February.
  12. Ríos-Rull, José-Víctor & Santaeulàlia-Llopis, Raül, 2010. "Redistributive shocks and productivity shocks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(8), pages 931-948, November.
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  1. What's up with the labor income share?
    by Economic Logician in Economic Logic on 2013-08-13 14:44:00
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