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

Abstract

This paper provides novel insights on the changing functional distribution of income in the postwar 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