Tuesday, August 13, 2013

What's up with the labor income share?

The labor income share in national income has been generally decreasing across industrialized countries for about three decades now. The consequences of this can be large, as this means a major reallocation of economic surpluses towards capital income (and the fact that Cobb-Douglas production functions become less appropriate). This trend has been exacerbated with the last recession, much to the dismay of many who see the rich capitalists screwing the labor force.

According to Loukas Karabarbounis and Brent Neiman that is at least not the entire story. Rather they emphasize that this drop in the labor income share is due to an increase in capital accumulation as a consequence of the decline in the price of investment goods. The drop cannot be attributed to changes in industrial composition, as it is also happening within industries. Note that this decline in investment good prices is often taken a symptom of technological progress, which means that for the first time since the industrial revolution, technological progress is leading to a decrease in the share of the production surplus that workers can capture. It just so happens that technology nowadays is labor-decreasing, or at least less labor-augmenting that it is capital-augmenting, and I do not think there is much that we should do about it at the technology level. At the fiscal level, that may be another question, though.

4 comments:

Anonymous said...

What do you think about this paper?

http://www.sephorahmangin.info/current_research/working_papers/July%202013%20Mangin%20Factor%20shares%20draft.pdf

I have an opinion, but wonder what others think.

Anonymous said...

What do you think about this comment?

I have an opinion, but wonder what others think.

Anonymous said...

The authors conclusion is almost certainly false. Trends in inequality in the US were long thought to be caused by skill-biased technological change -- turns out this was completely false, and looking back there was never one shred of evidence for it. The rise in inequality after 1980 was caused by changes in taxes, institutions, and the inflating away of the minimum wage.

ok1 said...

Anon 2013-08-15:
References plz? Autor-Katz-Kearney (ReStat 2008) disagree with you.