The Micro-Level Anatomy of the Labor Share Decline

Matthias Kehrig and Nicolas Vincent

No 13333, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The aggregate labor share in U.S. manufacturing declined from 62 percentage points (ppt) in 1967 to 41 ppt in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppt during the same period. Using micro-level data, we document a number of striking facts: (1) there has been a dramatic reallocation of value added to "hyper- productive" (HP) low-labor share establishments, with much more limited reallocation of inputs; (2) HP establishments have only temporarily lower labor shares that rebound after five to eight years to the level of their peers; (3) selection into HP status has become increasingly correlated with past size; (4) low labor shares are driven by high revenue total factor productivity (TFPR), not low wages; (5) employment has become less responsive to positive TFPR shocks over time; and (6) HP establishments enjoy a product price premium relative to their peers that causes their high (revenue) productivity, pointing to a significant role for demand-side forces. Counterfactual exercises indicate that selection along size is the primary driver of the fall in the aggregate labor share, with a smaller role for the decline in responsiveness.

Keywords: Labor share; Productivity; Firm size distribution; Relative prices (search for similar items in EconPapers)
JEL-codes: E2 L1 L2 L6 O4 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-lma and nep-mac
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Citations: View citations in EconPapers (39)

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Related works:
Journal Article: The Micro-Level Anatomy of the Labor Share Decline* (2021)
Working Paper: The Micro-Level Anatomy of the Labor Share Decline (2020)
Working Paper: The Micro-Level Anatomy of the Labor Share Decline (2018)
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