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Unemployment and the Labor Share

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  • Sephorah Mangin

Abstract

How do labor market conditions such as the unemployment rate influence the labor share? To answer this question, I develop a search-theoretic model of the labor market that generates a simple relationship between unemployment, workers' reservation wage, and the labor share. I derive expressions for the dynamic evolution of factor shares and present some comparative statics results regarding factor shares in the steady state equilibrium. I simulate the model and compare its predictions for factor shares to the U.S. data from 1951-2012. The results suggest that labor market conditions – specifically, unemployment fluctuations and changes in workers' reservation wage – can account for much of the variation in the U.S. labor share at an annual frequency during this period.

Suggested Citation

  • Sephorah Mangin, 2015. "Unemployment and the Labor Share," Monash Economics Working Papers 28-15, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2015-28
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    Cited by:

    1. Dongya Koh & Raül Santaeulàlia-Llopis, 2017. "Countercyclical Elasticity of Substitution," Working Papers 946, Barcelona School of Economics.
    2. Cantore, Cristiano & Freund, Lukas B., 2021. "Workers, capitalists, and the government: fiscal policy and income (re)distribution," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 58-74.
    3. Juan C. Córdoba & Anni T. Isojärvi & Haoran Li, 2023. "Endogenous Bargaining Power and Declining Labor Compensation Share," Finance and Economics Discussion Series 2023-030, Board of Governors of the Federal Reserve System (U.S.).
    4. Mangin, Sephorah, 2017. "A theory of production, matching, and distribution," Journal of Economic Theory, Elsevier, vol. 172(C), pages 376-409.
    5. Aristotelis Boukouras, 2016. "Capitalist Spirit and the Markets: Why Income Inequality Matters," Discussion Papers in Economics 16/16, Division of Economics, School of Business, University of Leicester.
    6. Juan C. Córdoba & Anni T. Isojärvi & Haoran Li, 2024. "Endogenous Bargaining Power and Declining Labor Compensation Share," Opportunity and Inclusive Growth Institute Working Papers 092, Federal Reserve Bank of Minneapolis.
    7. Clemens, Marius & Eydam, Ulrich & Heinemann, Maik, 2023. "Inequality over the business cycle: the role of distributive shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 27(3), pages 571-600, April.
    8. Kim, Jiwoon, 2021. "Wage negotiations in multi-worker firms and stochastic bargaining powers of existing workers," Journal of Economic Dynamics and Control, Elsevier, vol. 123(C).

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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