Development and sectoral labor income shares

Daniel Schaefer

Macroeconomic Dynamics, 2026, vol. 30, -

Abstract: The macroeconomic literature assumes that sectoral labor income shares and output per person are uncorrelated across countries. This paper shows that the data reject this assumption for a large set of countries. The labor shares of the manufacturing and market services sectors systematically increase with output per person relative to those of other sectors, leading to a shift of labor income across sectors with economic development. The empirical evidence suggests that capital deepening and cross-sector differences in the degree of capital-labor substitutability may be important for understanding these patterns. Researchers can directly use the provided dataset of labor shares to calibrate macroeconomic models.

Date: 2026
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