The Decline of the U.S. Labor Share

Abstract

Over the past quarter century, labor's share of income in the United States has trended downward, reaching its lowest level in the postwar period after the Great Recession. A detailed examination of the magnitude, determinants, and implications of this decline delivers five conclusions. First, about a third of the decline in the published labor share appears to be an artifact of statistical procedures used to impute the labor income of the self-employed that underlies the headline measure. Second, movements in labor's share are not solely a feature of recent U.S. history: The relative stability of the aggregate labor share prior to the 1980s in fact veiled substantial, though offsetting, movements in labor shares within industries. By contrast, the recent decline has been dominated by the trade and manufacturing sectors. Third, U.S. data provide limited support for neoclassical explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods. Fourth, prima facie evidence for institutional explanations based on the decline in unionization is inconclusive. Finally, our analysis identifies offshoring of the labor-intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years. e ver since Kaldor (1957, 1961) documented his growth facts, the constancy of the share of income that flows to labor has been taken to be one of the quintessential stylized facts of macroeconomics. 1 After several

Inequalities During and After Transition in Central and Eastern Europe

“…However, globalisation also implies changes in the relative demand of factors of production, with several jobs moving to low-wage countries and the consequent decrease in employment and wages in developed economies. This suggests that the specific effect on labour shares is controversial, and the evidence so far is still unclear: Elsby et al (2013) argue that globalisation is the main reason behind the decrease in labour shares in the US; on the other hand, Guerriero and Sen (2012), using country-level data similar to those used in this study, find that trade openness has a positive effect on labour shares, especially in developing countries. In fact, the further division of labour and the increased opportunities to specialise in terms of technologies, products and markets have the potential to enhance labour productivity, thereby creating room for non-inflationary wage increases while supporting employment growth.…”

“…Their main conclusion is that the declining relative price of investment goods, a consequence of technological change and particularly of the advances of computer technology, has induced firms to increasingly substitute labour for capital. In contrast to this result, Elsby et al (2013) claim that an elasticity of substitution greater than one is not a sufficient condition for generating long-run movements in the labour share; the main factor that has caused a decrease of labour shares in the US is increased globalisation, as increased import penetration and off-shoring have caused a downward pressure in employment and wages in the home countries. To shed light on this debate, we devote the next section to the investigation of the relationship between globalisation and labour share movements in transition economies.…”

“…Results so far are mixed, although there is general agreement that globalisation, technological changes and market regulations are among the main culprits. For example, Elsby et al (2013) claim that increasing globalisation has greatly contributed to the decrease in labour shares in the US, by moving the production of labour intensive goods to low-wage countries and by introducing downward wage pressure in the home economy, particularly for low-skilled workers. Karabarbounis and Neiman (2014), on the other hand, document that the decline in the price of investment goods, which accelerated in the early 1980s, explains approximately half of the decline in labour shares in a large sample of countries.…”

Libertarian personal responsibility

“…The correlation between an individual's wealth and the wealth of his or her parents is even stronger. These trends present ample reason to worry that social position will be increasingly dependent upon access to inherited wealth, as opposed to merit, effort, or virtue (Hungerford, 2011;Elsby, Hobijn and Sahin, 2013). In America's increasingly winner-take-all society (Hacker and Pierson, 2010) the fruits of honest hard work are increasingly reserved for a small percentage of the population.…”

The Distribution of Power and the Inflation-Unemployment Relationship in the United States: A Post-Keynesian Approach

“…Thus, my findings also suggest that Friedman's (1977) initial impressions were correct. 7 As a further check on the robustness of my analysis, I use data collected by Elsby, Hobijn, and Şahin (2013) which show the evolution of the U.S. payroll (labor) share over the past 55 years and up to 2013 using quarterly data. 8 Figure 3 reproduces the data and shows that the labor share grew quickly during the 1950s and1960s, and reached a peak in the first quarter of 1974 before falling precipitously during the early 1970s and from 2001 through 2013.…”