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Intermediate Input Prices and the Labor Share

Author

Listed:
  • Juanma Castro-Vincenzi

    (The University of Chicago, Department of Economics and NBER)

  • Benny Kleinman

    (Stanford University, Department of Economics and NBER)

Abstract

We argue that the relative price of materials is an important determinant of the labor share of income. When materials and primary inputs are complements and the profit share is positive, a higher price of materials lowers the labor share and raises the profit share of value added, without requiring markups or returns to scale to change. We show that materials-price fluctuations align with U.S. labor-share trends, provide causal evidence on this mechanism across industries and commuting zones, and quantify its importance in a dynamic quantitative model. Finally, we use our mechanism to rationalize differential labor-share trends across countries. Length: 103 pages

Suggested Citation

  • Juanma Castro-Vincenzi & Benny Kleinman, 2026. "Intermediate Input Prices and the Labor Share," Working Papers 2026-58, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2026-58
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    File URL: https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2026-58.pdf
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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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