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Intermediate Input Prices and the Labor Share

Author

Listed:
  • Juanma Castro-Vincenzi
  • Benny Kleinman

Abstract

We argue that the relative price of materials is an important determinant of the labor share of income. When materials and primary inputs are complements and the profit share is positive, a higher price of materials lowers the labor share and raises the profit share of value added, without requiring markups or returns to scale to change. We show that materials-price fluctuations align with U.S. labor-share trends, provide causal evidence on this mechanism across industries and commuting zones, and quantify its importance in a dynamic quantitative model. Finally, we use our mechanism to rationalize differential labor-share trends across countries.

Suggested Citation

  • Juanma Castro-Vincenzi & Benny Kleinman, 2026. "Intermediate Input Prices and the Labor Share," NBER Working Papers 35114, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35114
    Note: ITI
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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • 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
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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