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

Author

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  • 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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    File URL: https://economicdynamics.org/meetpapers/2017/paper_1369.pdf
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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, Oxford University Press, vol. 129(1), pages 61-103.
    2. Lawrence Robert Z., 2015. "Recent Declines in Labor's Share in U.S. Income: A Preliminary Neoclassical Account," Working Paper Series rwp15-034, Harvard University, John F. Kennedy School of Government.
    3. Koh, Dongya; Santaeulàlia-Llopis, Raül; Zheng, Yu, 2015. "Labor share decline and intellectual property products capital," Economics Working Papers ECO2015/05, European University Institute.
    4. 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.
    5. 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.
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    Cited by:

    1. Nicolas Vincent & Matthias Kehrig, 2017. "Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline," 2017 Meeting Papers 739, Society for Economic Dynamics.
    2. Richiardi, Matteo G. & Valenzuela, Luis, 2019. "Firm Heterogeneity and the Aggregate Labour Share," MPRA Paper 94561, University Library of Munich, Germany.
    3. 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 Group Munich.

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