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Heterogeneous Policy Distortions and the Labor Share

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  • Gabriel Smagghue

Abstract

I develop an extension of the neoclassical growth model in which firms are heterogeneous both in terms of labor share and productivity. In this model, distortions in the allocation of resources across firms can impact the labor share of national income. Using administrative firm-level data to calibrate the model, I show in particular that a removal of policies reducing the output price of more productive firms can generate a sizable decrease in the aggregate labor share (between 1 and 4 percentage points). My results suggest that the recent decline in the global labor share of income is both qualitatively and quantitatively consistent with an improvement in resource allocation across firms.

Suggested Citation

  • Gabriel Smagghue, 2021. "Heterogeneous Policy Distortions and the Labor Share," Working papers 803, Banque de France.
    • Handle: RePEc:bfr:banfra:803
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor Share; Size-based Policy; Productivity-based Policy; Resource Misallocation; Heterogeneous Labor Intensity.;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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