Will the 'True' Labor Share Stand Up? An Applied Survey on Labor Share Measures

24 Pages Posted: 20 Aug 2018

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: September 2018

Abstract

Labor’s share of income is a key variable in economics. It plays a leading role in analysis of (in)equality, globalization, technical change, growth theories, etc. Notwithstanding this broad application, there are many different definitions of the labor share. Understanding and synthesizing those differences is the purpose of this applied survey. Empirical measures may vary reflecting the allocation of income components that cannot be directly ascribed to capital or labor. We examine the alternative assumptions made in the literature in this regard and quantify and motivate the resulting discrepancies. Focusing (mostly) on US data, we show that different measures can have very distinct properties in terms of the observed stochastic trends, shares of short‐, medium‐, and long‐run variation and volatilities, persistence and mean‐reversion properties, and susceptibility to structural breaks. For instance, while “short‐run” properties of the surveyed labor share measures are relatively consistent across all definitions (and countercyclical), their “medium‐” and “long‐run” trends may diverge substantially (and are procyclical). To substantiate our analysis, we document the implications of discrepancies in the empirical labor share definition for growth accounting, analyzing the effect of technology shocks, and for estimating inflation dynamics.

Keywords: Applications, Labor share, Labor share taxonomy, Mixed income, Stylized facts

Suggested Citation

Muck, Jakub and McAdam, Peter and Growiec, Jakub, Will the 'True' Labor Share Stand Up? An Applied Survey on Labor Share Measures (September 2018). Journal of Economic Surveys, Vol. 32, Issue 4, pp. 961-984, 2018, Available at SSRN: https://ssrn.com/abstract=3233256 or http://dx.doi.org/10.1111/joes.12252

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 (Contact Author)

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

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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