The Decline in Labor Compensation's Share of GDP: A Structural Decomposition Analysis for the US, 1982-1997

Abstract:     
In this contribution, we study the decline of labor compensation's share of US GDP in the eighties and early nineties. According to data on gross domestic product constructed by the Bureau of Economic Analysis (BEA), this share steadily decreased from 59.1 to 56.0 percent between 1982 and 1997. This 3.1 percentage point drop may not seem notable. But it contrasts strongly against its steady rise of 6.6 percentage points from 1950 to 1970 (from 52.8 to 59.4 percent), when productivity rose rapidly. Moreover, it is clear that wage rates did not increase at the same pace as labor productivity during this period.

Recent literature suggests many potential causes of this phenomenon. Some of the causes pertain to almost all industries of the American economy (shift effects), whereas others strongly relate to structural changes (share effects). We propose a multiplicative structural decomposition analysis (SDA) inspired by a paper published in 2000 in the Journal of Regional Science by Dietzenbacher et al. to get insight into the relative empirical importance of these two categories of causes. The US dataset that we study in our decomposition analysis covers the period 1982-1997 and recognizes 175 different industries. It is constructed on the basis of input-output and labor data available from BEA and the US Bureau of Labor Statistics (BLS).

Keywords: Productivity, United States, productivity change, compenstion, structural decomposition analysis, input-output analysis

JEL Classification: O3, C67, O4, O51, O11, J3

Accepted Paper Series