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The Decline of the U.S. Labor Share

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  • Elsby, Michael

    (University of Edinburgh)

  • Hobijn, Bart

    (Federal Reserve Bank of San Francisco)

  • Sahin, Aysegül

    (Federal Reserve Bank of New York)

Abstract

Over the past quarter century, labor’s share of income in the United States has trended downwards, reaching its lowest level in the postwar period after the Great Recession. Detailed examination of the magnitude, determinants and implications of this decline delivers five conclusions. First, around one third of the decline in the published labor share is an artifact of a progressive understatement of the labor income of the self-employed underlying the headline measure. Second, movements in labor’s share are not a feature solely of recent U.S. history: The relative stability of the aggregate labor share prior to the 1980s in fact veiled substantial, though offsetting, movements in labor shares within industries. By contrast, the recent decline has been dominated by trade and manufacturing sectors. Third, U.S. data provide limited support for neoclassical explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods. Fourth, institutional explanations based on the decline in unionization also receive weak support. Finally, we provide evidence that highlights the offshoring of the labor-intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years. ; Prepared for Brookings Panel on Economic Activity, September 19-20, 2013.

Suggested Citation

  • Elsby, Michael & Hobijn, Bart & Sahin, Aysegül, 2013. "The Decline of the U.S. Labor Share," Working Paper Series 2013-27, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2013-27 DOI: 10.24148/wp2013-27
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    References listed on IDEAS

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    Cited by:

    1. Koh, Dongya; Santaeulàlia-Llopis, Raül; Zheng, Yu, 2015. "Labor share decline and intellectual property products capital," Economics Working Papers ECO2015/05, European University Institute.
    2. Prettner, Klaus & Schäfer, Andreas, 2016. "Higher education and the fall and rise of inequality," Hohenheim Discussion Papers in Business, Economics and Social Sciences 19-2016, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    3. repec:cbh:journl:v:14:y:2015:i:2:p:5-24 is not listed on IDEAS
    4. Abeliansky, Ana & Prettner, Klaus, 2017. "Automation and demographic change," Hohenheim Discussion Papers in Business, Economics and Social Sciences 05-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    5. Chen, Ping-ho & Chu, Angus C. & Chu, Hsun & Lai, Ching-chong, 2017. "Short-run and long-run effects of capital taxation on innovation and economic growth," Journal of Macroeconomics, Elsevier, pages 207-221.
    6. Andreas Irmen & Amer Tabakovic, 2016. "Factor Income Distribution and Endogenous Economic Growth - When Piketty meets Romer -," CREA Discussion Paper Series 16-18, Center for Research in Economic Analysis, University of Luxembourg.
    7. David Rezza Baqaee & Emmanuel Farhi, 2017. "Productivity and Misallocation in General Equilibrium," NBER Working Papers 24007, National Bureau of Economic Research, Inc.
    8. repec:eee:macchp:v2-3 is not listed on IDEAS
    9. Clemens Struck & Adnan Velic, 2017. "Automation, New Technology, and Non-Homothetic Preferences," Trinity Economics Papers tep1217, Trinity College Dublin, Department of Economics.
    10. Sampson, Thomas, 2016. "Assignment reversals: Trade, skill allocation and wage inequality," Journal of Economic Theory, Elsevier, vol. 163(C), pages 365-409.
    11. Jacob Short & Andrew Glover, 2016. "Accounting for Income Shares: The Changing Demographic Distribution of Earnings and the Decline in Labor Share," 2016 Meeting Papers 1631, Society for Economic Dynamics.
    12. Saltari, Enrico & Federici, Daniela, 2013. "Elasticity of substitution and technical progress: Is there a misspecification problem?," MPRA Paper 52194, University Library of Munich, Germany.
    13. Lawrence Robert Z., 2015. "Recent Declines in Labor's Share in U.S. Income: A Preliminary Neoclassical Account," Working Paper Series rwp15-034, Harvard University, John F. Kennedy School of Government.
    14. Jo Michell, 2014. "Factors generating and transmitting the financial crisis; Functional distribution of income," Working papers wpaper41, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    15. repec:eee:eecrev:v:98:y:2017:i:c:p:392-409 is not listed on IDEAS
    16. J. Michael Orszag & Peter R. Orszag, 2015. "Labor’s Share in Hungary," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(2), pages 5-24.
    17. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2017. "Inflation and economic growth in a Schumpeterian model with endogenous entry of heterogeneous firms," European Economic Review, Elsevier, vol. 98(C), pages 392-409.
    18. Anna M. Stansbury & Lawrence H. Summers, 2017. "Productivity and Pay: Is the link broken?," NBER Working Papers 24165, National Bureau of Economic Research, Inc.
    19. Jones, C.I., 2016. "The Facts of Economic Growth," Handbook of Macroeconomics, Elsevier.
    20. Schäfer, Andreas & Prettner, Klaus, 2016. "The fall and rise of inequality," Annual Conference 2016 (Augsburg): Demographic Change 145806, Verein für Socialpolitik / German Economic Association.
    21. repec:eee:pubeco:v:155:y:2017:i:c:p:147-163 is not listed on IDEAS
    22. Guschanski, Alexander & Onaran, Özlem, 2017. "The political economy of income distribution: industry level evidence from 14 OECD countries," Greenwich Papers in Political Economy 17518, University of Greenwich, Greenwich Political Economy Research Centre.
    23. Roman G. Smirnov & Kunpeng Wang, 2017. "Towards a new paradigm for mathematical modelling of growth," Papers 1711.02625, arXiv.org, revised Jan 2018.

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