Why is the Labor Share Declining?

16 Pages Posted: 24 Nov 2020

See all articles by Sangmin Aum

Sangmin Aum

Myongji University

Yongseok Shin

Washington University in St. Louis

Date Written: October, 2020

Abstract

The fraction of national income accruing to labor (the labor share) had been roughly constant in developed economies for much of the 20th century but has fallen since the 1980s. We review several of the leading explanations in the literature for the declining labor share. We then point to hitherto unexplored dimensions of the data and provide suggestive evidence for a new explanation. In particular, we show that the labor share began a steeper descent in 2000. This more recent break in the labor-share trend coincides with the rapid rise of software investment, which has left a larger impact on service industries (than manufacturing) and on high-skill, cognitive occupations (than middle-skill, routine occupations).

JEL Classification: E25, O33

Suggested Citation

Aum, Sangmin and Shin, Yongseok, Why is the Labor Share Declining? (October, 2020). Available at SSRN: https://ssrn.com/abstract=3736264 or http://dx.doi.org/10.20955/r.102.413-28

Sangmin Aum (Contact Author)

Myongji University ( email )

50-3 Namgajwadong
Seodaemungu
Seoul, 120-728

Yongseok Shin

Washington University in St. Louis

One Brookings Drive
Campus Box 1208
Saint Louis, MO 63130-4899
United States

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