Declining Labor Shares and the Global Rise of Corporate Saving

Loukas Karabarbounis and Brent Neiman

No 18154, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The stability of the labor share is a key foundation in macroeconomic models. We document, however, that the global labor share has significantly declined over the last 30 years. This decline was associated with a significant increase in corporate saving, generally the largest component of national saving. We relate the labor share to corporate saving empirically and theoretically using a model featuring CES production and imperfections in the flow of funds between households and corporations. These two departures from the standard neoclassical model imply that the labor share fluctuates and that corporate saving affects macroeconomic allocations. We argue that it is important to study the labor share and corporate saving jointly, and offer a unified explanation for their trends. A global decline in the cost of capital beginning around 1980 induced firms to shift away from labor and toward capital, financed in part with an increase in corporate saving.

JEL-codes: E21 E22 E25 G32 G35 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-mac
Note: CF EFG IFM
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Citations: View citations in EconPapers (44)

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