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Declining Labor Share and Innovation

Author

Listed:
  • Georges Vivien Houngbonon

    () (LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec)

  • Pascal Da Costa

    () (LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec)

Abstract

In this paper, we document declining labor share using a sample of international companies from developed economies. While this trend makes internal funds available for financing innovation, we find that R&D expenditures fall alike. Firm-level fixed effects estimation , controlling for the intensity of competition and financial constraints, confirms a positive correlation between labor share and R&D expenditures. A counterfactual analysis shows that a percentage point fall in labor share reduces output growth by 0.01 percentage point in the short run, and up to 0.02 percentage point in the long run, due to declining innovation.

Suggested Citation

  • Georges Vivien Houngbonon & Pascal Da Costa, 2017. "Declining Labor Share and Innovation," Working Papers hal-01653816, HAL.
    • Handle: RePEc:hal:wpaper:hal-01653816
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01653816
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    References listed on IDEAS

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    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    2. David Autor & David Dorn & Lawrence F. Katz & Christina Patterson & John Van Reenen, 2017. "Concentrating on the Fall of the Labor Share," American Economic Review, American Economic Association, vol. 107(5), pages 180-185, May.
    3. Aamir Rafique Hashmi, 2013. "Competition and Innovation: The Inverted-U Relationship Revisited," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1653-1668, December.
    4. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
    5. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 3-16, Spring.
    6. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities are Useful: A Comment on Kaplan and Zingales," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 695-705.
    7. John Hutchinson & Damiaan Persyn, 2012. "Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 17-43, April.
    8. Bentolila Samuel & Saint-Paul Gilles, 2003. "Explaining Movements in the Labor Share," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-33, October.
    9. Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
    10. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    11. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
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    Keywords

    Labor share; Innovation;

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