Will the “True” Labor Share Stand Up? An Applied Survey on Labor Share Measures

Abstract

Labor's share of income is a key variable in economics. It plays a leading role in analysis of (in)equality, globalization, technical change, growth theories, etc. Notwithstanding this broad application, there are many different definitions of the labor share. Understanding and synthesizing those differences is the purpose of this applied survey. Empirical measures may vary reflecting the allocation of income components that cannot be directly ascribed to capital or labor. We examine the alternative assumptions made in the literature in this regard and quantify and motivate the resulting discrepancies. Focusing (mostly) on US data, we show that different measures can have very distinct properties in terms of the observed stochastic trends, shares of short-, medium-, and long-run variation and volatilities, persistence and mean-reversion properties, and susceptibility to structural breaks. For instance, while "short-run" properties of the surveyed labor share measures are relatively consistent across all definitions (and countercyclical), their "medium-" and "long-run" trends may diverge substantially (and are procyclical). To substantiate our analysis, we document the implications of discrepancies in the empirical labor share definition for growth accounting, analyzing the effect of technology shocks, and for estimating inflation dynamics.

Isoelastic Elasticity of Substitution Production Functions

“…The ADF statistics for the log relative factor share, log capital share, and log labor share are above −1.967, so that the null about a unit root cannot be rejected at the 10% significance level. This result aligns with the fact that evidence for covariance stationarity of the US labor share is weak [Mućk et al (2018)], mirroring the fact that more than 70% of the total variance of the US labor share can be attributed to (highly persistent) medium-run swings and long-run nonlinear trends [Growiec et al (2018)].…”

The distributive cycle: Evidence and current debates

“…For more extensive discussions of these issues, see Gollin (2002); Rupert (2004, 2007); Elsby et al (2013); Mendieta-Muñoz et al (2020, Section 2) and especially Mućk et al (2018) in this journal. We largely follow the approach outlined in Gomme and Rupert (2004, p. 8), Gomme and Rupert (2007, p. 471, eq.…”

The Labor Share of Income around the World: Evidence from a Panel Dataset

“…This study intends to address these issues. Firstly, since factor shares are conceptually difficult to define (Gollin 2002) and highly dependent on the way they are constructed (Bridgman 2017;Izyumov and Vahaly 2015;Mućk et al 2018), we examine different methodologies of measurement. Secondly, after comparing five alternative measures used in the existing empirical literature, we propose a sixth indicator, which allows us to compile a new global dataset of the labor income share across 151 economies -both developing and developed -for all or part of the period 1970-2015.…”