ECONREVIEWS: Perspectives on the Labor Share

The labor share of U.S. income, as of 2022, is at its lowest level since the Great Depression.
The document examines the decline of the labor share in the United States and other countries across various industries. It explores the impact of technology, product, labor, and capital markets, as well as globalization on this trend. The document also discusses the relationship between the labor share and other macroeconomic trends, such as rising markups, increased economic activity concentration, and globalization. It concludes with perspectives on the economic and policy implications of the labor share decline.

The labor share is the fraction of an economy’s income accruing to workers for their labor services. It is significant for understanding production functions, assessing a country’s productivity, and its economic policies. The labor share also describes the functional distribution of income and is often used as a measure of inequality.

Key factors contributing to the labor share decline include technology, product and labor markets, capital markets, and globalization. Technological developments, particularly in the information age and automation, have significantly influenced this decline. The document evaluates each factor’s plausibility and their implications for future economics research and policy.

There are ambiguities in measuring labor versus capital income, complicating the calculation of the labor share. Key issues include the treatment of national versus domestic income, taxes, proprietors' income, government and housing sector inclusion, and depreciation of physical capital.

The document constructs six measures of the labor share, with preferences for "Total: Proprietors Same Share" and the corporate labor share. These measures vary depending on the specific application and the need to understand differences arising from alternative measurements.

The treatment of government and housing sectors in the measurement is debated.
For government, including its production biases the labor share upward, but its exclusion overlooks its impact on overall distribution. Housing sector’s inclusion tends to decrease the labor share due to its high capital income component.

The document prefers the "Total: Proprietors Same Share" measure over "Total: Proprietors Same Wage" due to more natural assumptions regarding factor shares between businesses and proprietors.

The labor share increased during the first 15 years of the sample (1929 to 1945) and then showed a consistent decline. This decline is detailed across different periods and compared using various statistical measures.

The document utilizes BLS-BEA industry production accounts to evaluate labor share trends across various industries. Industries like mining, oil, and real estate have lower labor shares, whereas construction and services like education and health have higher labor shares.
Most industries show a decline in labor shares, with the median decline around 5 percentage points.

ECONREVIEWS