The global decline of the labor share

Loukas Karabarbounis, Brent Neiman

Research output: Contribution to journalArticlepeer-review

409 Scopus citations

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 languageEnglish (US)
Article numberqjt032
Pages (from-to)61-103
Number of pages43
JournalQuarterly Journal of Economics
Volume129
Issue number1
DOIs
StatePublished - Feb 1 2014

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