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Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline

Author

Listed:
  • Nicolas Vincent

    (HEC Montreal)

  • Matthias Kehrig

    (Duke University)

Abstract

The aggregate labor share in U.S. manufacturing declined dramatically over the last three decades: Since the mid-1980’s, the compensation for labor declined from 63% to 42% of value added which is unseen in any other sector of the U.S. economy. The labor share of the typical U.S. manufacturing plants, in contrast, rose by 5%. We document that reallocation of production towards "hyper-productive plants" contributes two thirds of the decline while the remaining one third are caused by exit of high-labor share plants. Plants that account for the majority of production by the late 2000's arrive at a low labor share by gradually increasing value added by a factor of three while keeping employment and compensation unchanged. Other than this output response, these low-labor share plants look very similar to their peers along almost all other characteristics such as equipment investment, exposure to trade or whether they are located in right-to-work states. Labor share decline explanations that focus on the role of equipment-embodied technical change, unions or international trade only therefore seem limited. Based on novel empirical evidence, we consider alternative explanations.

Suggested Citation

  • 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.
  • Handle: RePEc:red:sed017:739
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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