Declining Labor Shares and the Global Rise of Corporate Saving

48 Pages Posted: 16 Jun 2012  

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)

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Date Written: June 2012

Abstract

The stability of the labor share is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined over the last 30 years. This decline was associated with a significant increase in corporate saving, generally the largest component of national saving. We relate the labor share to corporate saving empirically and theoretically using 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 that corporate saving affects macroeconomic allocations. We argue that it is important to study the labor share and corporate saving jointly, and offer a unified explanation for their trends. A global decline in the cost of capital beginning around 1980 induced firms to shift away from labor and toward capital, financed in part with an increase in corporate saving.

Suggested Citation

Karabarbounis, Loukas and Neiman, Brent, Declining Labor Shares and the Global Rise of Corporate Saving (June 2012). NBER Working Paper No. w18154. Available at SSRN: https://ssrn.com/abstract=2085140

Loukas Karabarbounis (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Brent Neiman

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) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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