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Labor Share Decline and Productivity Slowdown: A Micro-Macro Analysis

Author

Listed:
  • Francesca Crucitti
  • Lorenza Rossi

Abstract

This paper uses firm-level data to empirically investigate the relative contribution of the declining relative price of investments, the increasing automation, and the rising price markups on the labor share decline and productivity slowdown witnessed in the last 20 years in the Spain manufacturing sector. The results point to automation and markups as important drivers of both phenomena, while the relative price of investments has the opposite sign, coherent with the evidence of capital-labor complementarity. A theoretical model characterized by rm heterogeneity, endogenous markups distribution, and financial market frictions, parsimoniously accounts for the empirical findings, and it is used to draw aggregate implications. Last, the model accounts for the observed changes in the distribution of rm markup and size and for the decline in business dynamism that occurred in the last decades.

Suggested Citation

  • Francesca Crucitti & Lorenza Rossi, 2022. "Labor Share Decline and Productivity Slowdown: A Micro-Macro Analysis," Working Papers 350577481, Lancaster University Management School, Economics Department.
    • Handle: RePEc:lan:wpaper:350577481
    as

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    File URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2022_001.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor share; TFP Losses; Firm dynamics; Capital Misallocation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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