The Age-Distribution of Earnings and the Decline in Labor's Share

Jacob Short and Andy Glover

No 1369, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We estimate the effect of the age-distribution of earnings on factor shares of income. We derive an income accounting formula when wages differ from marginal products by a proportional earnings wedge that varies over age and time. Under this generalized wage-setting, the age-distribution of earnings affects labor's share even if production is Cobb Douglas. We estimate the age-profile of earnings wedges using cross-sectoral data. Our estimates imply a rising wedge over the lifecycle, with sixty-five year olds receiving about one third of their marginal product relative to twenty-five year olds. Our estimates imply that 75% of the post-2000 decline in US labor's share is due to aging and that many countries have likely experience age-related declines in labor's share in recent years.

Date: 2017
New Economics Papers: this item is included in nep-age and nep-dem
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Citations: View citations in EconPapers (3)

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