Abstract

We study medium-run movements in the labor income share in major euro area economies and the United States from 1960 to 2023. Methodologically, we develop a structural VAR with common trends to identify persistent labor share Dynamics and their drivers using theory-based sign restrictions. Economically, we document a Transatlantic Divide. In Europe, the labor share was stable until the 1980s, declined over the next two decades, and then stabilized, reflecting changes in labor market institutions and labor supply. In contrast, the U.S. labor share fell sharply after 2000, driven mainly by labor-saving technological change, especially automation forces.