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Accounting for Factorless Income

In: NBER Macroeconomics Annual 2018, volume 33

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  • Loukas Karabarbounis
  • Brent Neiman

Abstract

Comparing U.S. GDP to the sum of measured payments to labor and imputed rental payments to capital results in a large and volatile residual or “factorless income.” We analyze three common strategies of allocating and interpreting factorless income, specifically that it arises from economic profits (Case Π), unmeasured capital (Case K), or deviations of the rental rate of capital from standard measures based on bond returns (Case R). We are skeptical of Case Π as it reveals a tight negative relationship between real interest rates and markups, leads to large fluctuations in inferred factor-augmenting technologies, and results in markups that have risen since the early 1980s but that remain lower today than in the 1960s and 1970s. Case K shows how unmeasured capital plausibly accounts for all factorless income in recent decades, but its value in the 1960s would have to be more than half of the capital stock, which we find less plausible. We view Case R as most promising as it leads to more stable factor shares and technology growth than the other cases, though we acknowledge that it requires an explanation for the pattern of deviations from common measures of the rental rate. Using a model with multiple sectors and types of capital, we show that our assessment of the drivers of changes in output, factor shares, and functional inequality depends critically on the interpretation of factorless income.
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Suggested Citation

  • Loukas Karabarbounis & Brent Neiman, 2018. "Accounting for Factorless Income," NBER Chapters,in: NBER Macroeconomics Annual 2018, volume 33 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:14088
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    References listed on IDEAS

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    Cited by:

    1. repec:nbr:nberch:13895 is not listed on IDEAS
    2. Wen Chen & Bart Los & Marcel Timmer, 2017. "Factor Incomes in Global Value Chains: The Role of Intangibles," NBER Chapters,in: Measuring and Accounting for Innovation in the 21st Century National Bureau of Economic Research, Inc.
    3. Vicente Salas & Lucio San Juan & Javier Vallés, 2018. "Corporate cost and profit shares in the euro area and the US: the same story?," Working Papers 1833, Banco de España;Working Papers Homepage.
    4. Dmitry Kuvshinov & Kaspar Zimmermann, 2018. "The Big Bang: Stock Market Capitalization in the Long Run," Working Papers 0136, European Historical Economics Society (EHES).
    5. Kuvshinov, Dmitry & Zimmermann, Kaspar, 2018. "The Big Bang: Stock Market Capitalization in the Long Run," MPRA Paper 88581, University Library of Munich, Germany.
    6. Esteban Rossi-Hansberg & Pierre-Daniel Sarte & Nicholas Trachter, 2018. "Diverging Trends in National and Local Concentration," NBER Working Papers 25066, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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