The Global Decline of the Labor Share

49 Pages Posted: 18 Jun 2013 Last revised: 15 Mar 2015

See all articles by Loukas Karabarbounis

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)

Date Written: June 2013

Abstract

The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing profits, capital-augmenting technology growth, and the changing skill composition of the labor force. We highlight the implications of this explanation for welfare and macroeconomic dynamics.

Suggested Citation

Karabarbounis, Loukas and Neiman, Brent, The Global Decline of the Labor Share (June 2013). NBER Working Paper No. w19136. Available at SSRN: https://ssrn.com/abstract=2281046

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 )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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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