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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

Abstract: 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)
New Economics Papers: this item is included in nep-mac
Date: 2019-06
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