The decline of the labor share: new empirical evidence
- Drago Bergholt, Francesco Furlanetto and Nicolò Maffei Faccioli
We estimate a structural vector autoregressive model in order to quantify four main explanations for the decline of the US labor income share: (i) rising market power of ﬁrms, (ii) falling market power of workers, (iii) higher investment-speciﬁc technology growth, and (iv) the widespread emergence of automation or robotization in production processes. Identiﬁcation is achieved with theory robust sign restrictions imposed at medium-run horizons. The restrictions are derived from a stylized macroeconomic model of structural change. Across speciﬁcations we ﬁnd that automation is the main driver of the long-run labor share. Firms’ rising markups can, however, account for a signiﬁcant part of the accelerating labor share decline observed in the last 20 years. Our results also point to complementarity between labor and capital, thus ruling out capital deepening as a major force behind declining labor shares. If anything, investment-speciﬁc technology growth has contributed to higher labor income shares in our sample.
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ISSN 1502-8190 (online)