Will the True Labor Share Stand Up?

47 Pages Posted: 24 Jun 2015

See all articles by Jakub Muck

Jakub Muck

National Bank of Poland - Department of Economics; Warsaw School of Economics (SGH) - Institute of Econometrics

Peter McAdam

European Central Bank (ECB)

Jakub Growiec

National Bank of Poland; Warsaw School of Economics (SGH)

Date Written: June 22, 2015

Abstract

We document the consequences of ambiguity in the empirical definition of the macroeconomic labor share. Depending on its definition, the properties of short-run fluctuations, medium-run swings, and long-run stochastic trends of the labor share may vary substantially. Based on a range of historical US time series, we carry out a systematic exploration of discrepancies between the alternative labor share definitions in terms of the observed stochastic trends, shares of short-, medium- and long-run variation in total volatility of the series, degree of persistence, mean-reversion properties, and susceptibility to structural breaks. We conclude that while short-run properties of the labor shares (represented by cyclical variation below 8 years) are relatively consistent across all definitions, their medium-run swings (8-50 years) and long-run trends (50 years) diverge substantially. As important applications, we document the implications of our findings for growth accounting, the identification of short-run responses of the labor share to technology shocks and for estimating inflation.

Keywords: labor share; mean reversion; persistence; spectral analysis; structural breaks

JEL Classification: C82, E25, E32

Suggested Citation

Muck, Jakub and McAdam, Peter and Growiec, Jakub, Will the True Labor Share Stand Up? (June 22, 2015). ECB Working Paper No. 1806, Available at SSRN: https://ssrn.com/abstract=2621612 or http://dx.doi.org/10.2139/ssrn.2621612

Jakub Muck

National Bank of Poland - Department of Economics ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) - Institute of Econometrics ( email )

Niepodleglosci 164
Warsaw, 02-554
Poland

Peter McAdam

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Eurotower
D-60311 Frankfurt am Main
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Jakub Growiec (Contact Author)

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH)

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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