The Declining Labor Share of Income

2010 Occasional Paper
By Rodriguez, Francisco; Jayadev, Arjun

We use two distinct panel datasets to extract and examine data on the labor share of output. From the first, we examine trends in the economy-wide labor share and from the second, we examine trends in the labor share of the manufacturing sector over the last three decades. Both datasets show that labor shares have decreased, starting from about 1980, in most regions of the world. This finding is robust to adjustments for self-employment as well as adjustments for unbalanced panel structure. Furthermore, we present evidence that as a first approximation, this decrease is driven by declines in intra sector labor shares as opposed to movements in activity towards sectors with lower labor shares.