IDEAS home Printed from https://ideas.repec.org/p/bca/bocawp/23-20.html
   My bibliography  Save this paper

Demographic Origins of the Decline in Labor’s Share

Author

Listed:
  • Andrew Glover
  • Jacob Short

Abstract

Since 1980, the earnings share of older workers has risen in the United States. At the same time, labor’s share of income has declined significantly. We hypothesize that an aging workforce has contributed to the decline in labor’s share of income. We formalize this hypothesis in an on-the-job search model in which employers of older workers may have substantial monopsony power due to the decline in labor market dynamism that accompanies aging. The greater monopsony power manifests as a growing wedge between a worker’s earnings and their marginal product over the life cycle. We estimate the profile of these wedges using cross-industry variation in labor’s share and the age distribution of earnings. We find that a 60-year-old worker receives half the marginal product relative to when they were 20. Together with recent demographic trends, this can account for 59% of the recent decline in labor’s share of earnings in the United States.

Suggested Citation

  • Andrew Glover & Jacob Short, 2023. "Demographic Origins of the Decline in Labor’s Share," Staff Working Papers 23-20, Bank of Canada.
    • Handle: RePEc:bca:bocawp:23-20
    as

    Download full text from publisher

    File URL: https://www.bankofcanada.ca/wp-content/uploads/2023/04/swp2023-20.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alvarez-Cuadrado, Francisco & Long, Ngo Van & Poschke, Markus, 2018. "Capital-labor substitution, structural change and the labor income share," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 206-231.
    2. Melissa Bjelland & Bruce Fallick & John Haltiwanger & Erika McEntarfer, 2011. "Employer-to-Employer Flows in the United States: Estimates Using Linked Employer-Employee Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(4), pages 493-505, October.
    3. Rasmus Lentz & Nicolas Roys, 2024. "Training and Search On the Job," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 53, pages 123-146, July.
    4. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    5. Jesper Bagger & Francois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages," SciencePo Working papers Main hal-01301431, HAL.
    6. Azar, José & Marinescu, Ioana & Steinbaum, Marshall & Taska, Bledi, 2020. "Concentration in US labor markets: Evidence from online vacancy data," Labour Economics, Elsevier, vol. 66(C).
    7. Musa Orak, 2017. "Capital-Task Complementarity and the Decline of the U.S. Labor Share of Income," International Finance Discussion Papers 1200, Board of Governors of the Federal Reserve System (U.S.).
    8. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
    9. Jesper Bagger & Fran?ois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," American Economic Review, American Economic Association, vol. 104(6), pages 1551-1596, June.
    10. Dongya Koh & Raül Santaeulàlia‐Llopis & Yu Zheng, 2020. "Labor Share Decline and Intellectual Property Products Capital," Econometrica, Econometric Society, vol. 88(6), pages 2609-2628, November.
    11. Nicolas Vincent & Matthias Kehrig, 2017. "Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline," 2017 Meeting Papers 739, Society for Economic Dynamics.
    12. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    13. Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-1357, September.
    14. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
    15. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    16. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    17. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4, National Bureau of Economic Research, Inc.
    18. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-792, March.
    19. Andrew Glover & Jacob Short, 2020. "Can Capital Deepening Explain the Global Decline in Labor's Share?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 35-53, January.
    20. Matthias Kehrig & Nicolas Vincent, 0. "The Micro-Level Anatomy of the Labor Share Decline," The Quarterly Journal of Economics, Oxford University Press, vol. 136(2), pages 1031-1087.
    21. Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
    22. Andrew Glover & Jacob Short, 2020. "Can Capital Deepening Explain the Global Decline in Labor's Share?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 35-53, January.
    23. Paul Beaudry & David A. Green & Benjamin M. Sand, 2014. "The Declining Fortunes of the Young since 2000," American Economic Review, American Economic Association, vol. 104(5), pages 381-386, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Amanda Michaud, 2023. "David Autor, David A. Mindell, and Elisabeth B. Reynolds: The Work of the Future—Building Better Jobs in an Age of Intelligent Machines," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 58(1), pages 63-64, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Glover & Jacob Short, 2020. "Can Capital Deepening Explain the Global Decline in Labor's Share?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 35-53, January.
    2. Andrew Glover & Jacob Short, 2020. "Can Capital Deepening Explain the Global Decline in Labor's Share?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 35-53, January.
    3. Song, Eunbi, 2021. "What drives labor share change? Evidence from Korean industries," Economic Modelling, Elsevier, vol. 94(C), pages 370-385.
    4. Gonzalez, Ignacio & Trivin, Pedro, 2019. "The Global Rise of Asset Prices and the Decline of the Labor Share," MPRA Paper 94587, University Library of Munich, Germany.
    5. Baris Kaymak & Immo Schott, 2018. "Corporate Tax Cuts and the Decline of the Labor Share," 2018 Meeting Papers 943, Society for Economic Dynamics.
    6. Loukas Karabarbounis & Brent Neiman, 2019. "Accounting for Factorless Income," NBER Macroeconomics Annual, University of Chicago Press, vol. 33(1), pages 167-228.
    7. Jacob Short & Andrew Glover, 2017. "The Age-Distribution of Earnings and the Decline in Labor's Share," 2017 Meeting Papers 1369, Society for Economic Dynamics.
    8. Xiao, De & Yu, Fan & Guo, Chenhao, 2023. "The impact of China's pilot carbon ETS on the labor income share: Based on an empirical method of combining PSM with staggered DID," Energy Economics, Elsevier, vol. 124(C).
    9. vom Lehn, Christian, 2018. "Understanding the decline in the U.S. labor share: Evidence from occupational tasks," European Economic Review, Elsevier, vol. 108(C), pages 191-220.
    10. Li, Bing & Liu, Chang & Sun, Stephen Teng, 2021. "Do corporate income tax cuts decrease labor share? Regression discontinuity evidence from China," Journal of Development Economics, Elsevier, vol. 150(C).
    11. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.
    12. Takahashi, Harutaka & Le Riche, Antoine, 2021. "A dynamic theory of the declining aggregated labor income share: Intangible capital vs. tangible capital," Research in Economics, Elsevier, vol. 75(1), pages 104-118.
    13. Reshef, Ariell & Santoni, Gianluca, 2023. "Are your labor shares set in Beijing? The view through the lens of global value chains," European Economic Review, Elsevier, vol. 155(C).
    14. Guimarães, Luís & Mazeda Gil, Pedro, 2022. "Explaining the Labor Share: Automation Vs Labor Market Institutions," Labour Economics, Elsevier, vol. 75(C).
    15. Emilien Gouin-Bonenfant, 2018. "Productivity Dispersion, Between-firm Competition and the Labor Share," 2018 Meeting Papers 1171, Society for Economic Dynamics.
    16. Roya Taherifar & Mark J. Holmes & Gazi M. Hassan, 2023. "The drivers of labour share and impact on pay inequality: A firm-level investigation," Working Papers in Economics 23/03, University of Waikato.
    17. Alessandro Bellocchi & Giovanni Marin & Giuseppe Travaglini, 2021. "The Great Fall of Labor Share:Micro Determinants for EU Countries Over 2011-2019," Working Papers 2102, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2021.
    18. David Rezza Baqaee & Emmanuel Farhi, 2020. "Productivity and Misallocation in General Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 105-163.
    19. Gene M. Grossman & Elhanan Helpman & Ezra Oberfield & Thomas Sampson, 2017. "Balanced Growth Despite Uzawa," American Economic Review, American Economic Association, vol. 107(4), pages 1293-1312, April.
    20. repec:hal:wpspec:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    21. Panon, Ludovic, 2022. "Labor share, foreign demand and superstar exporters," Journal of International Economics, Elsevier, vol. 139(C).

    More about this item

    Keywords

    Labour markets; Productivity;

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:23-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.