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The Micro-Level Anatomy of the Labor Share Decline

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  • Matthias Kehrig
  • Nicolas Vincent

Abstract

The labor share in U.S. manufacturing declined from 62 percentage points (ppts) in 1967 to 41 ppts in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppts during the same period. Using micro-level data, we document five salient facts: (1) since the 1980s, there has been a dramatic reallocation of value added toward the lower end of the labor share distribution; (2) this aggregate reallocation is not due to entry/exit, to “superstars” growing faster or to large establishments lowering their labor shares, but is instead due to units whose labor share fell as they grew in size; (3) low labor share (LL) establishments benefit from high revenue labor productivity, not low wages; (4) they also enjoy a product price premium relative to their peers, pointing to a significant role for demand-side forces; and (5) they have only temporarily lower labor shares that rebound after five to eight years. This transient pattern has become more pronounced over time, and the dynamics of value added and employment are increasingly disconnected.

Suggested Citation

  • Matthias Kehrig & Nicolas Vincent, 2018. "The Micro-Level Anatomy of the Labor Share Decline," NBER Working Papers 25275, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25275
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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