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What Do We Know About the Labor Share and the Profit Share? Part II: Empirical Studies

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  • Olivier Giovannoni

Abstract

In this second part of our study we survey the rapidly expanding empirical literature on the determinants of the functional distribution of income. Three major strands emerge: technological change, international trade, and financialization. All contribute to the fluctuations of the labor share, and there is a significant amount of self-reinforcement among these factors. For the case of the United States, it seems that the factors listed above are by order of increasing importance. We conclude by noting that the falling US wage shares cointegrates with rising inequality and a rising top 1 percent income share. Thus, all measures of income distribution provide the same picture. Liberalization and financialization worsen economic inequality by raising top incomes, unless institutions are strongly redistributive. The labor share has also fallen, for structural reasons and for reasons related to economic policy. Such explanations are left to parts III and IV of our study, respectively. Part I investigated the theories of income distribution.

Suggested Citation

  • Olivier Giovannoni, 2014. "What Do We Know About the Labor Share and the Profit Share? Part II: Empirical Studies," Economics Working Paper Archive wp_804, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_804
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    References listed on IDEAS

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    1. Frank Levy & Peter Temin, 2007. "Inequality and Institutions in 20th Century America," NBER Working Papers 13106, National Bureau of Economic Research, Inc.
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    4. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1279-1333.
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    6. Nadiri, M Ishaq, 1970. "Some Approaches to the Theory and Measurement of Total Factor Productivity: A Survey," Journal of Economic Literature, American Economic Association, vol. 8(4), pages 1137-1177, December.
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    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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