The global decline of the labor share

That is the new paper by Loukas Karabarbounis and Brent Neiman, and the abstract is this:

The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has signi cantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced fi rms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing pro fits, capital-augmenting technology growth, and the changing skill composition of the labor force. We highlight the implications of this explanation for welfare and macroeconomic dynamics.

In other words, capital-labor substitutability is very real.  The full piece is here (pdf).


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