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http://ssrn.com/abstract=2083136
 
 

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Declining Labor Shares and the Global Rise of Corporate Savings


Loukas Karabarbounis


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Brent Neiman


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

June 1, 2012

Chicago Booth Research Paper No. 12-17

Abstract:     
We document a 5 percentage point decline in the share of global corporate income paid to labor from the mid-1970s to the late 2000s. Increased dividend payments did not absorb all of the resulting increase in profits, and therefore, the supply of corporate savings increased by over 20 percentage points as a share of total global savings. These trends were stronger in countries experiencing greater declines in the relative price of investment goods. We develop a model featuring CES production and imperfections in the flow of funds between households and corporations. These two departures from the standard neoclassical model imply that the labor share fluctuates and the sectoral composition of savings affects macroeconomic allocations. We calibrate the shape of the production function and the capital market imperfections to match the cross-sectional variation in the two trends. In response to the observed global decline in investment prices, our model generates more than half of the observed changes in labor shares and corporate savings. The non-unitary elasticity of substitution between capital and labor interacts with imperfections in the capital market to jointly shape the economy's dynamics.

Number of Pages in PDF File: 51

Keywords: Labor Share, Production Function, Corporate Savings, Capital Market Imperfections

JEL Classification: E21, E22, E25, G32, G35

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Date posted: June 12, 2012 ; Last revised: July 23, 2012

Suggested Citation

Karabarbounis, Loukas and Neiman, Brent, Declining Labor Shares and the Global Rise of Corporate Savings (June 1, 2012). Chicago Booth Research Paper No. 12-17. Available at SSRN: http://ssrn.com/abstract=2083136 or http://dx.doi.org/10.2139/ssrn.2083136

Contact Information

Loukas Karabarbounis
University of Chicago - Booth School of Business ( email )
5807 South Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Brent Neiman (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
HOME PAGE: http://faculty.chicagobooth.edu/brent.neiman/index.html
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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