Capital-labor substitution, structural change and the labor income share

Alvarez-Cuadrado, Francisco; Long, Ngo Van; Poschke, Markus

doi:10.1016/j.jedc.2017.12.010

Cited by 80 publications

(29 citation statements)

References 27 publications

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“…Under these assumptions, a decrease in the stock of public capital raises the marginal product of private capital and its market value, which drives the labor share down. The predictions of our model are thus consistent with explanations of the labor share decline based on a fall in Tobin's q [17], and also with studies documenting more pronounced labor share declines in the manufacturing sector [18].…”

Section: Introductionsupporting

confidence: 89%

“…The declining trend in the labor share in advanced economies over the last several decades is documented in several studies [1,7,8]. Alvarez-Cuadrado, Long, and Poschke [18] further documented that this trend is particularly pronounced in the manufacturing sector. Several explanations have been proposed for the decline in the labor share.…”

Section: Economic Inequality and Labor Sharementioning

confidence: 88%

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Public Capital and the Labor Income Share

Bom

Goti

2018

Sustainability

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The decline of the labor share of income over the last few decades has been documented for many developed economies. A declining labor share is associated with rising income inequality, which raises obvious economic and social concerns. Although several explanations for this fact have been provided in the literature, they usually rely on elastic substitution between private capital and labor, which is generally not supported by the empirical literature. We argue in this paper that the fall in the labor share is potentially associated with the decline in public investment ratios, which have also been observed in most developed economies in the last few decades. We use a calibrated small-scale macroeconomic model to show how a negative public investment shock can have a sizeable negative effect on the labor share. Two assumptions are key in this result: that public capital directly augments private capital in production and that the elasticity of substitution between private capital and labor is smaller than one. We argue that both assumptions are plausible in practice. Our results suggest that, to promote long-run sustainable and inclusive growth, governments should increase the fraction of output devoted to public investment.

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Section: Introductionsupporting

confidence: 89%

Section: Economic Inequality and Labor Sharementioning

confidence: 88%

Public Capital and the Labor Income Share

Bom

Goti

2018

Sustainability

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“…Koh et al (2016) emphasize the rise of intangible capital such as intellectual property products, research and development and knowledge capital in the production function of developed economies. Alvarez-Cuadrado et al (2015) show that industry-specificities in technological change and the elasticity of substitution between capital and labor matters for the dynamics of industry-level factor shares. A common ingredient in the argument of these papers is that the elasticity of substitution between equipment or intangible capital and (routine) labor has to be greater than unity.…”

Section: Introductionmentioning

confidence: 95%

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

Kehrig

Vincent

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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 67% to 47% 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 over 5 percentage points. We reconcile these two facts by documenting (1) an important reallocation of production towards "hyper-productive plants" and (2) a downward adjustment of the labor share of those same plants over time. These two related forces account for almost all the change in the trend of aggregate labor share in the manufacturing sector, with only a small role for exit of high-labor-share plants. Relative to their peers, 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. Terms of use: Documents in

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“…For example, differences in the elasticity of substitution between capital and labor between sectors may result in different sectoral labor income share trends. In a recent study on the US, Alvarez-Cuadrado, Long, and Poschke (2015) showed that a larger decline in labor income share in manufacturing relative to that in services is partly driven by a larger elasticity of substitution between capital and labor in manufacturing than in services. In another paper, Buera and Kaboski (2012) argue that this rising return to skill is intimately connected to the structural transformation of economic activity towards services.…”

Section: Introductionmentioning

confidence: 99%

Globalization, Structural Transformation, and the Labor Income Share

Suzuki

Oishi

Paul

2019

ADB Institute Series on Development Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractThis paper provides novel empirical evidence on the role of trade and structural transformation as potential drivers of the labor income share. Using cross-country data, both at the national and sectoral level, we find that trade openness is negatively correlated with the labor income share. The findings are robust across national and disaggregated levels, and across different model specifications. However, the relationship between the process of structural transformation and labor income share is at best mixed. We also find weak evidence that skill-biased structural transformation is likely to be positively correlated with the share of labor income predominantly in the services sectors.

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Capital-labor substitution, structural change and the labor income share

Cited by 80 publications

References 27 publications

Public Capital and the Labor Income Share

Public Capital and the Labor Income Share

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

Globalization, Structural Transformation, and the Labor Income Share

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