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Technological Changes, Offshoring, and the Labor Share

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  • Weicheng Lian

Abstract

Existing studies on the downward trend in the labor share of income mostly focus on changes within individual countries. I document, however, that half of the global decline in the labor share of income can be traced to the relocation of activities between countries. I develop a two-country model to show that when the relative price of investment goods falls, production activities with a small elasticity of substitution between capital and labor tend to get offshored from high- to low-wage countries. The model provides an explanation as to why such relocation may drive the labor share down in both developed and developing economies, as well as globally.

Suggested Citation

  • Weicheng Lian, 2019. "Technological Changes, Offshoring, and the Labor Share," IMF Working Papers 2019/142, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/142
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    References listed on IDEAS

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    1. Robert Z. Lawrence, 2015. "Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account," NBER Working Papers 21296, National Bureau of Economic Research, Inc.
    2. Ms. Mitali Das & Weicheng Lian & Zsoka Koczan & Mai Chi Dao, 2017. "Why Is Labor Receiving a Smaller Share of Global Income? Theory and Empirical Evidence," IMF Working Papers 2017/169, International Monetary Fund.
    3. Roc Armenter, 2015. "A bit of a miracle no more: the decline of the labor share," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 1-9.
    4. Thomas Piketty, 2015. "About Capital in the Twenty-First Century," American Economic Review, American Economic Association, vol. 105(5), pages 48-53, May.
    5. Yu Zheng & Raul Santaeulalia & Dongya Koh, 2015. "Labor Share Decline and the Capitalization of Intellectual Property Products," 2015 Meeting Papers 844, Society for Economic Dynamics.
    6. Weicheng Lian & Natalija Novta & Evgenia Pugacheva & Yannick Timmer & Petia Topalova, 2020. "The Price of Capital Goods: A Driver of Investment Under Threat," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 509-549, September.
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    Cited by:

    1. Guschanski, Alexander & Onaran, Özlem, 2021. "The effect of global value chain participation on the labour share – Industry level evidence from emerging economies," Greenwich Papers in Political Economy 31973, University of Greenwich, Greenwich Political Economy Research Centre.

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