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The Global Rise of Asset Prices and the Decline of the Labor Share

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  • Gonzalez, Ignacio
  • Trivin, Pedro

Abstract

The labor income share has been decreasing across countries since the early 1980s, sparking a growing literature about the causes of this trend (Karabarbounis and Neiman, 2014; Piketty and Zucman, 2014; among many others). At the same time, there has been a steady increase in asset prices. We build a simple model to argue that the increase in the value of financial assets crowds out capital formation. The negative impact of asset prices on the capital-output ratio declines the labor share if capital and labor are aggregate complements. Based on a common factor model, we find that the global increase of Tobin's Q can account for up to 57% of the labor share decline. We highlight three potential factors that operate through the same theoretical channel: capital income taxes, capitalized market power rents and corporate governance frictions.

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  • Gonzalez, Ignacio & Trivin, Pedro, 2019. "The Global Rise of Asset Prices and the Decline of the Labor Share," MPRA Paper 94587, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94587
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    Cited by:

    1. Kostarakos, Ilias, 2020. "Determinants of the (non-Housing) Labour Income Share in the EU," Papers WP693, Economic and Social Research Institute (ESRI).

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    More about this item

    Keywords

    Tobin's Q; Labor Share; Asset Prices; Capital-Output ratios.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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