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Labor Share

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Marriott Marquis, Catalina
Hosted By: Econometric Society
  • Chair: Gilbert Cette, Bank of France

Automation and New Tasks: How Technology Displaces and Reinstates Labor

Daron Acemoglu
,
Massachusetts Institute of Technology
Pascual Restrepo
,
Boston University

Abstract

We present a framework for understanding the effects of automation and other types of technological changes on labor demand, and use it to interpret changes in US employment over the recent past. At the center of our framework is the allocation of tasks to capital and labor---the task content of production. Automation, which enables capital to replace labor in tasks it was previously engaged in, shifts the task content of production against labor because of a displacement effect. As a result, automation always reduces the labor share in value added and may reduce labor demand even as it raises productivity. The effects of automation are counterbalanced by the creation of new tasks in which labor has a comparative advantage. The introduction of new tasks changes the task content of production in favor of labor because of a reinstatement effect, and always raises the labor share and labor demand. We show how the role of changes in the task content of production---due to automation and new tasks---can be inferred from industry-level data. Our empirical decomposition suggests that the slower growth of employment over the last three decades is accounted for by an acceleration in the displacement effect, especially in manufacturing, a weaker reinstatement effect, and slower growth of productivity than in previous decades.

The Micro-Level Anatomy of the Labor Share Decline

Matthias Kehrig
,
Duke University
Nicolas Vincent
,
HEC Montreal

Abstract

The manufacturing labor share in U.S. manufacturing declined from 62 percentage points (ppt) in 1967 to 41 ppt in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppt during the same period. Using micro-level data, we document a number of salient facts: (1) since the 1980s, there has been a dramatic reallocation of value added towards the lower end of the labor share distribution; (2) this aggregate reallocation is not due to entry/exit, “superstars” growing faster or large establishments lowering their labor shares, but instead by units whose labor share falls as the same time as they grow in size; (3) low-labor- share (LL) establishments have only temporarily lower labor shares that rebound after five to eight years to the level of their peers; (4) low labor shares are driven by high revenue labor productivity, not low wages; (5) LL establishments enjoy a product price premium relative to their peers that causes their high (revenue) productivity, pointing to a significant role for demand-side forces; (6) there is evidence that advertising activity plays a role in shaping labor share dynamics; (7) the transient pattern of labor shares for LL establishments has become more pronounced over time; and (8) the dynamics of value added and employment have become more and more disconnected over time.

Labour Share Developments over the Past Two Decades: The Role of Technological Progress, Globalisation and “Winner-Takes-Most” Dynamics

Cyrille Schwellnus
,
OECD

Abstract

In about one half of OECD countries labour shares have declined significantly over the past two decades while they have remained broadly constant or increased in the remaining half. Countries with falling labour shares have experienced larger declines in investment prices and have witnessed larger declines in labour shares at the technological frontier than the remaining countries. Using a combination of industry- and firm-level data, this paper finds that declines in investment prices related to technological change in the investment goods-producing sector have compressed labour shares, especially in industries specialising in routine-intensive tasks. The labour share-compressing effect of declining investment prices overwhelmingly operates through the reallocation of market shares from high to low labour share-firms. In particular, labour share declines at the technological frontier mainly reflect the entry of firms with low labour shares rather than declines in incumbent frontier firms, suggesting that thus far they are mainly explained by technological dynamism rather than anti-competitive forces.

Corporate Tax Cuts and the Decline of the Manufacturing Labor Share

Baris Kaymak
,
University of Montreal
Immo Schott
,
University of Montreal

Abstract

We document a strong empirical connection between corporate taxation and the manufacturing labor share across OECD countries as well as across US states. Our estimates associate 30% of the observed decline in the labor share with the global fall in corporate taxation. We present an equilibrium model of an industry where firms differ in their capital intensities. Lower corporate tax rates reduce the labor share by raising the market share of capital inten- sive firms. The tax elasticity of the aggregate labor share depends on the distribution of labor intensities at the micro level. Given the observed distribution of factor intensities in the US manufacturing industry, the model predicts that corporate tax cuts explain about 40% of the decline in the manufacturing labor share since the 1950s.

Have Labor Shares Really Declined Globally?

Gilbert Cette
,
Bank of France
Lorraine Koehl
,
INSEE
Thomas Philippon
,
New York University

Abstract

We challenge the common wisdom of a global secular decline in the labor share. We document three issues in the existing literature: (i) starting periods for the empirical analysis; (ii) accounting for self-employment; and (iii) accounting for residential real estate income. Once we account for these three potential biases we find that there has been no global decline in the labor share, and that the U.S. experience after 2000 is not representative of that of other developed countries.
Discussant(s)
Davide Furceri
,
International Monetary Fund
Danny Yagan
,
University of California-Berkeley
Jeffrey Campbell
,
Federal Reserve Bank of Chicago
Gordon Hanson
,
University of California-San Diego
Nicolas Vincent
,
HEC Montreal
JEL Classifications
  • D3 - Distribution
  • D2 - Production and Organizations