Declining Labor Shares and the Global Rise of Corporate Saving
AbstractThe stability of the labor share is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined over the last 30 years. This decline was associated with a significant increase in corporate saving, generally the largest component of national saving. We relate the labor share to corporate saving empirically and theoretically using a model featuring CES production and imperfections in the flow of funds between households and corporations. These two departures from the standard neoclassical model imply that the labor share fluctuates and that corporate saving affects macroeconomic allocations. We argue that it is important to study the labor share and corporate saving jointly, and offer a unified explanation for their trends. A global decline in the cost of capital beginning around 1980 induced firms to shift away from labor and toward capital, financed in part with an increase in corporate saving.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18154.
Date of creation: Jun 2012
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Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
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- Horioka, Charles Yuji & Terada-Hagiwara, Akiko, 2013.
"Corporate Cash Holding in Asia,"
ADB Economics Working Paper Series
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- Charles Y. Horioka & Akiko Terada-Hagiwara, 2013. "Corporate Cash Holding in Asia," NBER Working Papers 19688, National Bureau of Economic Research, Inc.
- Charles Yuji Horioka & Akiko Terada-Hagiwara, 2013. "Corporate Cash Holding in Asia," ISER Discussion Paper 0889, Institute of Social and Economic Research, Osaka University.
- Charles Yuji Horioka & Akiko Terada-Hagiwara, 2013. "Corporate Cash Holding in Asia," UP School of Economics Discussion Papers 201311, University of the Philippines School of Economics.
- J. Stephen Ferris, 2012. "The Relationship Between Government Size and Economic Performance with Particular Application to New Zealand," Carleton Economic Papers 12-06, Carleton University, Department of Economics, revised 25 Apr 2013.
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