Demographic Origins of the Decline in Labor's Share
Andrew Glover and
No 874, BIS Working Papers from Bank for International Settlements
Since 1980, the earnings share of older workers has risen in the United States, simultaneous with a historic decline in labor's share of income. We hypothesize that an aging workforce has contributed to the decline in labor's share. We formalize this hypothesis in an on-the-job search model, in which employers of older workers may have substantial monopsony power due to the decline in labor market dynamism that accompanies age. This manifests as a rising wedge between a worker's earnings and marginal product over the life-cycle. We estimate the age profile of these wedges using cross-industry responses of labor shares to changes in the age-distribution of earnings. We find that a sixty-year-old worker receives half of her marginal product relative to when she was twenty, which, together with recent demographic trends, can account for 59% of the recent decline in the U.S. labor share. Industrial heterogeneity in this age profile is consistent with the monopsony-power mechanism: highly unionized industries exhibit no relationship between age and payroll shares.
Keywords: demographics; labor share; earnings distribution; income distribution (search for similar items in EconPapers)
JEL-codes: E25 J11 J31 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-age, nep-dem, nep-lma and nep-ltv
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:874
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