Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-30T18:59:15.006Z Has data issue: false hasContentIssue false
  • English
  • Français

IS LABOR'S LOSS CAPITAL'S GAIN? GROSS VERSUS NET LABOR SHARES

Published online by Cambridge University Press:  11 July 2017

Benjamin Bridgman
Benjamin Bridgman*
Affiliation:
Bureau of Economic Analysis
*
Address correspondence to: Benjamin Bridgman, US Department of Commerce, Bureau of Economic Analysis, Washington, DC 20230, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

US labor share has been falling since the 1970s. I show that it has not fallen as much once items that do not add to capital, depreciation and production taxes, are netted out. Recent net labor share is within its historical range, whereas gross share is at its lowest level. This effect holds for other high-income economies. The overall picture is no longer one of unprecedented, globally declining labor share. Using gross share as a proxy for net share can give misleading results. US gross share and inequality are correlated, whereas net share, the correct measure, is not.

Keywords

Labor ShareDepreciationTaxesInequality
Type
Articles
Information
Macroeconomic Dynamics , Volume 22 , Issue 8 , December 2018 , pp. 2070 - 2087
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I thank Berthold Herrendorf, Bart Hobijn, Loukas Karabarbounis, Aubhik Khan, Brent Neiman, Erick Sager, Julia Thomas and seminar participants at the BEA/Census Research Conference, Bureau of Labor Statistics, Midwest Macro Meetings in St. Louis, NBER Summer Institute, and the Ohio State for comments. The views expressed in this paper are solely those of the author and not necessarily those of the US Bureau of Economic Analysis or the US Department of Commerce.

References

REFERENCES

Acemoglu, Daron and Robinson, James A. (2015) The rise and fall of general laws of capitalism. Journal of Economic Perspectives 29, 3–28.Google Scholar
Ahsan, Reshad N. and Mitra, Devashish (2014) Trade liberalization and labor's slice of the pie: Evidence from Indian firms. Journal of Development Economics 108, 1–16.Google Scholar
Alvaredo, Facundo, Atkinson, Anthony B., Piketty, Thomas, and Saez, Emmanuel (2013) The top 1 percent in international and historical perspective. Journal of Economic Perspectives 27, 3–20.Google Scholar
Alvaredo, Facundo, Atkinson, Anthony B., Piketty, Thomas, and Saez, Emmanuel (2014) World Top Incomes Database. Electronic resource September 18, Paris School of Economics.Google Scholar
Arpaia, Alfonso, Perez, Esther, and Pichelmann, Karl (2009) Understanding Labour Income Share Dynamics in Europe. Economic papers 379, European Commission.Google Scholar
Autor, David H., Dorn, David, and Hanson, Gordon H. (2015) Untangling trade and technology: Evidence from local labor markets. Economic Journal 125, 621–646.Google Scholar
Blanchard, Olivier and Giavazzi, Francesco (2003) Macroeconomic effects of regulation and deregulation in goods and labor markets. Quarterly Journal of Economics 118, 879–907.Google Scholar
Bloom, Nicholas, Draca, Mirko, and Van Reenen, John (2016) Trade induced technical change? The impact of Chinese imports on innovation, IT and productivity. Review of Economic Studies 83, 87–117.Google Scholar
Bockerman, Petri and Malirantay, Mika (2012) Globalization, Creative Destruction, and Labour Share Change: Evidence on the Determinants and Mechanisms from Longitudinal Plant-Level Data. Oxford Economic Papers 64, pp. 259–280.Google Scholar
Bonnet, Odran, Bono, Pierre-Henri, Chapelle, Guillaume, and Wasmer, Etienne (2014) Does Housing Capital Contribute to Inequality? A Comment on Thomas Piketty's Capital in the 21st Century. Discussion paper 2014–07, Sciences Po Economics.Google Scholar
Caballero, Ricardo J. and Hammour, Mohamad L. (1998) Jobless growth: Appropriability, factor substitution, and unemployment. Carnegie-Rochester Conference Series on Public Policy 48, 51–94.Google Scholar
Colciago, Andrea and Rossi, Lorenza (2015) Firm dynamics, endogenous markups and the labor share of income. Macroeconomic Dynamics 19, 1309–1331.Google Scholar
Corrado, Carol, Hulten, Charles, and Sichel, Daniel (2005) Measuring capital and technology: An expanded framework. In Corrado, C., Haltiwanger, J., and Sichel, D. (eds.), Measuring Capital in the New Economy, pp. 11–41. Chicago: University of Chicago Press.Google Scholar
Dasgupta, Partha (2009) The welfare economic theory of green national accounts. Environmental and Resource Economics 42, 3–38.Google Scholar
Diewert, Erwin and Fox, Kevin (2005) The New Economy and An Old Problem: Net Versus Gross Output. Working paper 2005/02, Centre for Applied Economic Research.Google Scholar
Eden, Maya and Gaggl, Paul (2015) On the Welfare Implications of Automation. Policy Research working paper 7487, World Bank.Google Scholar
Elsby, Michael W. L., Hobijn, Bart, and Sahin, Aysegul (2013) The decline of the U.S. labor share. Brookings Papers on Economic Activity 47, 1–52.Google Scholar
Ferguson, C. E. and John, R. Moroney (1969) The sources of change in labor's relative share: A neoclassical analysis. Southern Economic Journal 35, 308–322.Google Scholar
Fixler, Dennis and Johnson, David S. (2012) Accounting for the distribution of income in the U.S. national accounts. In Jorgenson, D. W., Landefeld, J. S., and Schreyer, P. (eds.), Measuring Economic Sustainability and Progress, pp. 157–174. Chicago: University of Chicago Press.Google Scholar
Gali, Jordi and Gertler, Mark (1999) Inflation dynamics: A structural econometric analysis. Journal of Monetary Economics 44, 195–222.Google Scholar
Gollin, Douglas (2002) Getting income shares right. Journal of Political Economy 110, 458–474.Google Scholar
Gomme, Paul and Rupert, Peter (2004) Measuring Labor's Share of Income. Policy discussion paper 7, Federal Reserve Bank of Cleveland.Google Scholar
Gordon, Robert J. and Dew-Becker, Ian (2008) Controversies About the Rise of American Inequality: A Survey. Working paper 13982, NBER.Google Scholar
Guerriero, Marta (2012) The Labour Share of Income Around the World: Evidence from a Panel Dataset. Development Economics and Public Policy working paper 32/2012, University of Manchester.Google Scholar
Harjes, Thomas (2007) Globalization and Income Inequality: A European Perspective. Working paper 07/169, IMF.Google Scholar
Harrison, Ann E. (2005) Has Globalization Eroded Labor's Share? Some Cross-Country Evidence. Working paper 39649, MPRA.Google Scholar
Hondroyiannis, George, Swamy, P. A. V. B., and Tavlas, George S. (2009) New Keynesian Phillips curve in a time-varying coefficient environment: Some European evidence. Macroeconomic Dynamics 13, 149–166.Google Scholar
Hulten, Charles R. (1992) Accounting for the wealth of nations: The net versus gross output controversy and its ramifications. Scandinavian Journal of Economics 94 (Supplement), 9–24.Google Scholar
Hulten, Charles R. and Schreyer, Paul (2010) GDP, Technical Change, and the Measurement of Net Income: The Weitzman Model Revisited. Working paper 16010, NBER.Google Scholar
Jacobson, Margaret and Occhino, Filippo (2012) Labor's Declining Share of Income and Rising Inequality. Economic commentary 2012–13, Federal Reserve Bank of Cleveland.Google Scholar
Joines, Douglas H. (1981) Estimates of effective marginal tax rates on factor incomes. Journal of Business 54, 191–226.Google Scholar
Jones, Charles I. (2015) The macroeconomics of Piketty. Journal of Economic Perspectives 29, 29–46.Google Scholar
Kaldor, Nicholas (1957) A model of economic growth. Economic Journal 67, 591–624.Google Scholar
Kamal, Fariha, Lovely, Mary E., and Mitra, Devashish (2014) Trade Liberalization and Labor Shares in China. Center for Economic Studies paper CES-WP-14-24, Census Bureau.Google Scholar
Karabarbounis, Loukas and Neiman, Brent (2014a) Capital Depreciation and Labor Shares Around the World: Measurment and Implications. Mimeo, Chicago Booth.Google Scholar
Karabarbounis, Loukas and Neiman, Brent (2014b) The global decline of the labor share. Quarterly Journal of Economics 129, 61–103.Google Scholar
Koh, Dongya, Santaeulalia, Raul, and Zheng, Yu (2015) Labor Share Decline and the Capitalization of Intellectual Property Products. Mimeo, Washington University of St. Louis.Google Scholar
Kravis, Irving B. (1959) Relative income shares in fact and theory. American Economic Review 49, 917–949.Google Scholar
Krusell, Per and Smith, Anthony (2015) Is Piketty's ‘Second Law of Capitalism’ fundamental? Journal of Political Economy 123, 725–748.Google Scholar
Krusell, Per, Ohanian, Lee E., Rios-Rull, Jose-Victor, and Violante, Giovanni L. (2000) Capital-skill complementarity and inequality: A macroeconomic analysis. Econometrica 68, 1029–1053.Google Scholar
Lawless, Martina and Whelan, Karl T. (2011) Understanding the dynamics of labor shares and inflation. Journal of Macroeconomics 33, 121–136.Google Scholar
Li, Wendy C. Y. (2012) Depreciation of Business R&D Capital. R&D satellite account paper, Bureau of Economic Analysis/National Science Foundation.Google Scholar
McGrattan, Ellen and Prescott, Edward C. (2014) A reassessment of real business cycle theory. American Economic Review Papers and Proceedings 104, 177–182.Google Scholar
Piketty, Thomas (2014) Capital in the 21st Century. Cambridge, MA: Belknap Press.Google Scholar
Qi, Hao (2014) The labor share question in China. Monthly Review 65 (8), 23–35.Google Scholar
Rios-Rull, Jose-Victor and Santaeulalia-Llopis, Raul (2010) Redistributive shocks and productivity shocks. Journal of Monetary Economics 57, 931–948.Google Scholar
Rognlie, Matthew (2014) A Note on Piketty and Diminishing Returns to Capital. Mimeo, MIT.Google Scholar
Rognlie, Matthew (2015) Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity? Brookings Papers on Economic Activity 2015.Google Scholar
Shao, Enchuan and Silos, Pedro (2014) Accounting for the cyclical dynamics of income shares. Economic Inquiry 52, 778–795.Google Scholar
Soloveichik, Rachel and Wasshausen, David (2013) Copyright Protected Assets in the National Accounts. Working paper 2013–14, Bureau of Economic Analysis.Google Scholar
Solow, Robert M. (1958) A skeptical note on the constancy of relative shares. American Economic Review 48, 618–631.Google Scholar
U.S. Bureau of Economic Analysis (2003) Fixed Assets and Consumer Durable Goods in the United States, 1925–99. Washington, DC: U.S. Government Printing Office.Google Scholar
Weitzman, Martin and Asheim, Geir (2001) Does NNP growth indicate welfare improvement? Economic Letters 73, 233–239.Google Scholar
Weitzman, Martin L. (1976) On the welfare significance of national product in a dynamic economy. Quarterly Journal of Economics 90, 156–162.Google Scholar