The Rise of Pass-Throughs and the Decline of the Labor Share

Matthew Smith, Danny Yagan, Owen Zidar and Eric Zwick

No 29400, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the coevolution of the fall in the US corporate sector labor share and the rise of business activity in tax-preferred, pass-through form. Reallocating activity to the form it would have taken prior to the Tax Reform Act of 1986 accounts for one third of the decline in the corporate sector labor share between 1978 and 2017. Our adjustments are concentrated among mid-market firms in services, leaving a larger role for the manufacturing sector and superstar firms in driving the remaining decline in the labor share. Our findings highlight the importance of tax policy when measuring factor shares.

JEL-codes: E01 E25 H25 J32 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-lma and nep-mac
Note: CF EFG ME PE PR
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Citations: View citations in EconPapers (5)

Published as Matthew Smith & Danny Yagan & Owen Zidar & Eric Zwick, 2022. "The Rise of Pass-Throughs and the Decline of the Labor Share," American Economic Review: Insights, vol 4(3), pages 323-340.

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Journal Article: The Rise of Pass-Throughs and the Decline of the Labor Share (2022)
Working Paper: The Rise of Pass-Throughs and the Decline of the Labor Share (2021)
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