The Rise of Pass-Throughs and the Decline of the Labor Share

Matthew Smith, Danny Yagan, Owen Zidar and Eric Zwick
Additional contact information
Matthew Smith: US Treasury Department
Eric Zwick: Chicago Booth and NBER

Working Papers from Princeton University. Economics Department.

Abstract: We study the coevolution of the fall in the U.S. corporate-sector labor share and the rise of business activity in tax-preferred pass-throughs. We find that reallocating activity to the form it would have taken prior to the Tax Reform Act of 1986 accounts for one third of the decline in the corporate-sector labor share between 1978 and 2017. Our adjustments are concentrated among mid-market firms in services, magnifying the role of the manufacturing sector and superstar firms in driving the remaining decline in the labor share. Our findings highlight the importance of tax policy when measuring factor shares.

Keywords: business; taxes (search for similar items in EconPapers)
JEL-codes: H25 M20 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Rise of Pass-Throughs and the Decline of the Labor Share (2022)
Working Paper: The Rise of Pass-Throughs and the Decline of the Labor Share (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2021-18

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