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Understanding the Transatlantic Divide in Labor Income Shares

Author

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  • Bergholt, Drago
  • Furlanetto, Francesco
  • Maffei Faccioli, Nicolo
  • Pappa, Evi

Abstract

We study medium-run movements in the labor income share in major euro area economies and the United States from 1960 to 2023. Methodologically, we develop a structural VAR with common trends to identify persistent labor share dynamics and their drivers using theory based sign restrictions. Economically, we document a Transatlantic Divide. In Europe, the labor share was stable until the 1980s, declined over the next two decades, and then stabilized, reflecting changes in labor market institutions and labor supply. In contrast, the U.S. labor share fell sharply after 2000, driven mainly by labor-saving technological change, especially automation forces.

Suggested Citation

  • Bergholt, Drago & Furlanetto, Francesco & Maffei Faccioli, Nicolo & Pappa, Evi, 2026. "Understanding the Transatlantic Divide in Labor Income Shares," CEPR Discussion Papers 21436, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21436
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    Keywords

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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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