The Global Rise of Asset Prices and the Decline of the Labor Share
Ignacio Gonzalez and
Pedro Trivin ()
MPRA Paper from University Library of Munich, Germany
The labor income share has been decreasing across countries since the early 1980s, sparking a growing literature about the causes of this trend (Karabarbounis and Neiman, 2014; Piketty and Zucman, 2014; among many others). At the same time, there has been a steady increase in asset prices. We build a simple model to argue that the increase in the value of financial assets crowds out capital formation. The negative impact of asset prices on the capital-output ratio declines the labor share if capital and labor are aggregate complements. Based on a common factor model, we find that the global increase of Tobin's Q can account for up to 57% of the labor share decline. We highlight three potential factors that operate through the same theoretical channel: capital income taxes, capitalized market power rents and corporate governance frictions.
Keywords: Tobin's Q; Labor Share; Asset Prices; Capital-Output ratios. (search for similar items in EconPapers)
JEL-codes: E22 E25 E44 (search for similar items in EconPapers)
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