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The Age-Distribution of Earnings and the Decline in Labor's Share

Author

Listed:
  • Jacob Short

    (University of Western Ontario)

  • Andrew Glover

    (University of Texas Austin)

Abstract

We estimate the effect of the age-distribution of earnings on factor shares of income. We derive an income accounting formula when wages differ from marginal products by a proportional earnings wedge that varies over age and time. Under this generalized wage-setting, the age-distribution of earnings affects labor's share even if production is Cobb Douglas. We estimate the age-profile of earnings wedges using cross-sectoral data. Our estimates imply a rising wedge over the lifecycle, with sixty-five year olds receiving about one third of their marginal product relative to twenty-five year olds. Our estimates imply that 75% of the post-2000 decline in US labor's share is due to aging and that many countries have likely experience age-related declines in labor's share in recent years.

Suggested Citation

  • Jacob Short & Andrew Glover, 2017. "The Age-Distribution of Earnings and the Decline in Labor's Share," 2017 Meeting Papers 1369, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1369
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    References listed on IDEAS

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    1. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    2. Robert Z. Lawrence, 2015. "Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account," Working Paper Series WP15-10, Peterson Institute for International Economics.
    3. Alvarez-Cuadrado, Francisco & Long, Ngo Van & Poschke, Markus, 2018. "Capital-labor substitution, structural change and the labor income share," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 206-231.
    4. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    5. Dongya Koh & Raül Santaeulàlia‐Llopis & Yu Zheng, 2020. "Labor Share Decline and Intellectual Property Products Capital," Econometrica, Econometric Society, vol. 88(6), pages 2609-2628, November.
    6. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    7. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-792, March.
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    Cited by:

    1. Matthias Kehrig & Nicolas Vincent, 2017. "Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline," CESifo Working Paper Series 6454, CESifo.
    2. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.

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