Abstract
The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares, such as increasing profits, capital-augmenting technology growth, and the changing skill composition of the labor force. We highlight the implications of this explanation for welfare and macroeconomic dynamics.
| Original language | English (US) |
|---|---|
| Article number | qjt032 |
| Pages (from-to) | 61-103 |
| Number of pages | 43 |
| Journal | Quarterly Journal of Economics |
| Volume | 129 |
| Issue number | 1 |
| DOIs | |
| State | Published - Feb 2014 |
Bibliographical note
Funding Information:*We thank the editors, Robert Barro and Elhanan Helpman, and seven anonymous referees for valuable comments and suggestions. We additionally thank Martin Berka, Bob Hall, Chang-Tai Hsieh, John Huizinga, Chad Jones, and Pete Klenow. Gabriela Antonie, Sophie Wang, Bowen Yang, Anny Zhong, Michael Marvin, and Victor Lin provided excellent research assistance. This research was funded in part by the Initiative on Global Markets and the Neubauer Family Foundation at the University of Chicago Booth School of Business. The data set that accompanies the article is available on the authors’ web pages.