The Decline of the U.S. Labor Share Across Sectors

Ivan Mendieta-Muñoz, Codrina Rada and Rudiger von Arnim ()

No 105, Working Papers Series from Institute for New Economic Thinking

Abstract: This paper provides novel insights on the changing functional distribution of income in the post–war US economy. We present a Divisia index decomposition of the US labor share (1948–2017) by fourteen sectors. The decomposition method furnishes exact contributions from four components towards aggregate changes of the labor share: sectoral real compensation, sectoral labor productivity, the structure of the economy as measured by employment shares, and the structure of markets as measured by relative prices. Results are presented for the entire period as well as the “golden age” (1948–1979) and a “neoliberal era” (1979–2017), painting a rich and detailed picture of structural changes in the US economy. The manufacturing sector plays a dominant role: despite its continuously falling employment share, growth of real compensation matches that of labor productivity in the early period but falls far behind during the neoliberal era. Further, employment shifts towards stagnant sectors with relatively low real wages and productivity. We discuss these results in the context of Baumol’s and Lewis’s seminal contributions on dual economies. While the cost disease is apparent—employment shifts towards stagnant sectors, their relative prices rise, and the aggregate growth rate (of productivity) decreases—the originally suggested mechanism of upward real wage convergence is muted. The observed changes are instead compatible with a “reverse-Lewis” shift, where stagnant sectors act as a labor surplus sink, and dynamic sector labor experiences slowing real wage growth.

Keywords: Labor share; sectoral decomposition; stagnation; Baumol; Lewis (search for similar items in EconPapers)
JEL-codes: C43 D33 O41 O5 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-10
New Economics Papers: this item is included in nep-his and nep-tid
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Decline of the US Labor Share Across Sectors (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:105

DOI: 10.36687/inetwp105

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