Our new cross-country dataset (which we have made publicly available) allows us to circumvent important measurement difficulties confronted by most of the labor share literature. This finding argues against otherwise plausible explanations for the decline of the labor share that operate through sectoral shifts in economic activity. In most countries, changes in the aggregate labor share predominantly reflect changes in industry-level labor shares rather than changes in the size of industries with different labor share levels. The majority of industries also experienced declines in their labor shares. The labor share decline is also observed in many emerging markets that recently opened up to trade including China, India, and Mexico. The labor share has declined in all Scandinavian countries, where labor unions have been strong traditionally. It can be found in the United States and in 7 out of the 8 largest economies of the world (the exception is the United Kingdom for which our data starts in the late 1980s). The decline in the labor share has been pervasive. We build a new dataset from national income and product accounts for many countries and use it to document that the labor share has declined by more than 5 percentage points globally since the early 1980s. Our paper is a first attempt to quantify trends in the labor share in a comprehensive sample of countries and industries in the past 35 years, offering new stylized facts for macroeconomists. Few studies have documented how labor shares have evolved after the 1980s, with some notable exceptions being Blanchard (1997), Blanchard and Giavazzi (2003), and Jones (2003). “The Global Decline of the Labor Share” (Karabarbounis and Neiman, 2014a) provides a broad and systematic account of medium to long-term trends in the labor share of income. The labor share is the fraction of gross domestic product (GDP) paid as compensation to labor for its services in the form wages, salaries in cash or in kind, and various supplements such as employer contributions for sickness, pensions, and insurance. The conclusion outlines some future avenues of research. Next, we present our recent work that studies the implications of joint trends in depreciation and labor shares for the structure of production, inequality, and macro dynamics. Then, we summarize evidence that ties the labor share decline to the decline in the price of investment goods and contrast this with alternative explanations. We first describe global trends in the labor share and discuss some measurement issues. In this research overview, we summarize our work on the decline in the labor share. The requirement that the labor share be constant in theoretical models has shaped many economists’ intuitions regarding the aggregate production function, economic growth, and inequality.Īt odds with this background, the labor share of income has exhibited a pervasive global decline since the early 1980s. Despite some scepticism (see, for example, Solow, 1958), the constancy of the labor share has disciplined myriad models over the past half-century. Kaldor (1961) characterized the apparent stability of the share of income accruing to labor as a key stylized fact. Ricardo (1817) argued that the principal problem of Political Economy is to understand the laws governing the distribution of income between labor and capital. Karabarbounis’s RePEc/IDEAS profile and Neiman’s RePEc/IDEAS profile His research interests are at the intersection of international finance, macroeconomics, and trade. Brent Neiman is an Associate Professor of Economics at the University of Chicago Booth School of Business. His research interests are at the intersection of macroeconomics, labor economics, and international macro. Loukas Karabarbounis is an Associate Professor of Economics at the University of Chicago Booth School of Business. The Evolution of Factor Shares, by Loukas Karabarbounis and Brent Neiman
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