Inside the decline of the labor share: Technical change, market power, and structural change

Sergio Feijoo Moreira

Journal of Economic Dynamics and Control, 2022, vol. 145, issue C

Abstract: This paper documents substantial industry-level heterogeneity in the decline of the U.S. labor share and its main components: employment, wages, and value added. The decline is also contemporaneous with a strong process of structural change between manufacturing and services. I analyze both phenomena through the lens of a multi-sector model where sector-specific changes in market power and capital-biased technical change – the most prominent explanations for the declining labor share – also characterize the process of structural change between sectors. I show that increasing market power, which is pervasive across manufacturing and services, accounts for almost two-thirds of the decline in the labor share. Technical change explains the remaining third and is the fundamental driver of structural change between sectors.

Keywords: Labor share decline; Capital-biased technical change; Market power; Structural change (search for similar items in EconPapers)
JEL-codes: O30 O40 O41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:145:y:2022:i:c:s016518892200269x

DOI: 10.1016/j.jedc.2022.104566

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