Explaining the Decline in the US Labor Share: Taxation and Automation

Burkhard Heer, Andreas Irmen and Bernd Süssmuth (suessmuth@wifa.uni-leipzig.de)
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Bernd Süssmuth: University of Leipzig, D

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: (To consult this DP, please send an e-mail to dem@uni.lu) This study provides evidence for the US that the secular decline in the labor share is not only explained by technical change or globalization, but also by the dynamics of factor taxation, automation capital, and population growth. First, we empirically find indications of co-integration for the 1974-2008 period. Permanent effects on factor shares emanate from relative factor taxation. The latter also have a lasting effect on the use of robots. Variance decompositions reveal that taxing contributes to changes in the two income shares and in automation capital. Second, we analyse and calibrate a neoclassical growth model extended to include factor taxation, automation capital, and capital adjustment costs. The model is able to replicate the dynamics of the observed functional income distribution in the US during the 1965-2015 period. Counterfactual experiments suggest that the fall in the labor share would have been significantly smaller if labor and capital income tax rates had remained at their respective level of the 1960s.

Keywords: Functional income distribution; labor income share; income taxes; automation capital; demography; growth. (search for similar items in EconPapers)
JEL-codes: D33 E62 J11 J20 O41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-lma, nep-mac and nep-pub
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Explaining the decline in the US labor share: taxation and automation (2023)
Working Paper: Explaining the Decline in the US Labor Share: Taxation and Automation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:20-20

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