Unemployment and the Labor Share

Sephorah Mangin

No 28-15, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: How do labor market conditions such as the unemployment rate influence the labor share? To answer this question, I develop a search-theoretic model of the labor market that generates a simple relationship between unemployment, workers' reservation wage, and the labor share. I derive expressions for the dynamic evolution of factor shares and present some comparative statics results regarding factor shares in the steady state equilibrium. I simulate the model and compare its predictions for factor shares to the U.S. data from 1951-2012. The results suggest that labor market conditions – specifically, unemployment fluctuations and changes in workers' reservation wage – can account for much of the variation in the U.S. labor share at an annual frequency during this period.

Pages: 40 pages
Date: 2015-05
New Economics Papers: this item is included in nep-dge and nep-lab
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Journal Article: Unemployment and the labor share (2018)
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