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Capital-Task Complementarity and the Decline of the U.S. Labor Share of Income

Author

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  • Musa Orak

Abstract

This paper provides evidence that shifts in the occupational composition of the U.S. workforce are the most important factor explaining the trend decline in the labor share over the past four decades. Estimates suggest that while there is unitary elasticity between equipment capital and non-routine tasks, equipment capital and routine tasks are highly substitutable. Through the lenses of a general equilibrium model with occupational choice and the estimated production technology, I document that the fall in relative price of equipment capital alone can explain 72 percent of the observed decline in the U.S. labor share. In addition, I find that differences in labor share trends across sectors can be accounted for by varying sensitivities of cost of production to the price of equipment capital.

Suggested Citation

  • Musa Orak, 2017. "Capital-Task Complementarity and the Decline of the U.S. Labor Share of Income," International Finance Discussion Papers 1200, Board of Governors of the Federal Reserve System (U.S.), revised Mar 2017.
  • Handle: RePEc:fip:fedgif:1200
    DOI: 10.17016/IFDP.2017.1200
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    File URL: https://www.federalreserve.gov/econres/ifdp/files/ifdp1200.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Goren, Amir, 2017. "Inequality and Production Elasticity," MPRA Paper 80316, University Library of Munich, Germany.
    2. vom Lehn, Christian, 2018. "Understanding the decline in the U.S. labor share: Evidence from occupational tasks," European Economic Review, Elsevier, vol. 108(C), pages 191-220.

    More about this item

    Keywords

    Technological change; Bayesian estimation; Job polarization; Elasticity of substitution; Capital-task complementarity; Labor share;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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