Technological Changes, Offshoring, and the Labor Share

Weicheng Lian

No 2019/142, IMF Working Papers from International Monetary Fund

Abstract: Existing studies on the downward trend in the labor share of income mostly focus on changes within individual countries. I document, however, that half of the global decline in the labor share of income can be traced to the relocation of activities between countries. I develop a two-country model to show that when the relative price of investment goods falls, production activities with a small elasticity of substitution between capital and labor tend to get offshored from high- to low-wage countries. The model provides an explanation as to why such relocation may drive the labor share down in both developed and developing economies, as well as globally.

Keywords: WP; elasticity of substitution; cost of capital; Labor Share; Offshoring; Technological Changes; Relative Cost of Capital; investment goods; goods trade; capital-labor elasticity; labor cost share; Manufacturing; Wages; Stocks; Global; offshoring proxy; micro elasticity (search for similar items in EconPapers)
Pages: 57
Date: 2019-07-02
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Citations: View citations in EconPapers (3)

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