Declining U.S. Labor Share

Rafael Galarza Fernandez

February 28, 2017

The Declining U.S. Labor Share, Explicated

Over the past decades the U.S.S labor share has been declining. Labor declining is the pattern that the share of the value of output that goes to workers in the form of compensation, which includes benefits as well as wage and salary compensation, has been dropping. The labor share was typically in the range of 63-65% from the 1950s into the early 1970s. By the 1980s and 1990s, it was more often falling in the range of 61-63%. In the early 2000s, it fell below 60%, and since the end of the Great Recession in 2009, it has typically been between 56% and 58%. This falling labor share is not some statistic recently created and promoted by partisan sources. There seems to be a slow decline in the labor share from the 1960s though the 1990s, which is briefly interrupted by a dot-com bounce at the 1990s, and then turns into a faster decline in the early 2000s. This pattern is part of what lies behind some other much-discussed changes in the US economy. For example, average wage increases have not matched up average productivity gains in recent decades, which is because the share going to labor is declining. A smaller labor share also has implications for the distribution of overall income, because it implies that those who receive a greater share of their income from non-labor sources, like returns on investment, are going to do relatively well.

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