McKinsey — A new look at the declining labor share of income in the United States

Labor’s share of national income—that is, the amount of GDP paid out in wages, salaries, and benefits—has been declining in developed and, to a lesser extent, emerging economies since the 1980s. This has raised concerns about slowing income growth, inequality, and loss of the consumer purchasing power that is needed to fuel demand in the economy. The decline has been much discussed and the rising power of companies vis-à-vis workers—whether from new technology, globalization, the hollowing out of labor unions, or market consolidation—has shaped much of that discussion.

The labor share of income in 35 advanced economies fell from around 54 percent in 1980 to 50.5 percent in 2014.

In A new look at the declining labor share of income in the United States (PDF–849KB) we examine the relative importance of different factors in the United States through a focus on the complement of the labor share decline—that is, the rise in capital share of income. We decompose this into the role of depreciation, capital-to-output ratios, and returns on invested capital. Linking this decomposition with a microanalysis of 12 key sectors allows us to identify the relative importance of the factors that have contributed to the labor share decline. While our findings confirm the relevance of the most commonly cited factors, including globalization and technology adoption, they also suggest that additional trends often absent from the current debate—including boom and bust effects from commodity and real estate cycles and rising depreciation, including from a shift to more intangible capital such as intellectual property—played an even more central role.

McKinsey
A new look at the declining labor share of income in the United States

See also

Jason Hickel
HOW NOT TO MEASURE INEQUALITY