Accounting for factorless income

Loukas Karabarbounis, Brent Neiman

Research output: Chapter in Book/Report/Conference proceedingChapter

3 Scopus citations


Comparing US gross domestic product to the sum of measured payments to labor and imputed rental payments to capital results in a large and volatile residual or “factorless” income.We analyze three common strategies of allocating and interpreting factorless income, specifically that it arises from economic profits (case P), unmeasured capital (case K), or deviations of the rental rate of capital from standard measures based on bond returns (case R). We are skeptical of case II because it reveals a tight negative relationship between real interest rates and economic profits, leads to large fluctuations in inferred factor-augmenting technologies, and results in profits that have risen since the early 1980s but that remain lower today than in the 1960s and 1970s. Case K shows how unmeasured capital plausibly accounts for all factorless income in recent decades, but its value in the 1960s would have to be more than half of the capital stock, which we find less plausible. We view case R as most promising as it leads to more stable factor shares and technology growth than the other cases, though we acknowledge that it requires an explanation for the pattern of deviations from common measures of the rental rate. Using a model with multiple sectors and types of capital, we show that our assessment of the drivers of changes in output, factor shares, and functional inequality depends critically on the interpretation of factorless income.

Original languageEnglish (US)
Title of host publicationNBER Macroeconomics Annual
PublisherUniversity of Chicago Press
Number of pages62
StatePublished - Jan 1 2019

Publication series

NameNBER Macroeconomics Annual
ISSN (Print)0889-3365
ISSN (Electronic)1537-2642

Fingerprint Dive into the research topics of 'Accounting for factorless income'. Together they form a unique fingerprint.

  • Cite this

    Karabarbounis, L., & Neiman, B. (2019). Accounting for factorless income. In NBER Macroeconomics Annual (1 ed., pp. 167-228). (NBER Macroeconomics Annual; Vol. 33, No. 1). University of Chicago Press.