The labor share is not in general falling

We study the joint impact of three measurement issues in the empirical literature on the labor share: (i) start and end periods for the empirical analysis; (ii) accounting for self-employment; and (iii) accounting for residential real estate income. When we correct for these three potential biases, we do not find a general decline in the labor share in our sample of advanced economies. In that respect the behavior of the US labor share after 2000 presents a puzzle.

That is from a new NBER Working Paper by Gilbert Cette, Lorraine Koehl, and Thoimas Philippon.

Comments

'accounting for residential real estate income'

Yes, landlords and land owners have always been considered part of the labor class, particularly in advanced economies.

Somebody is getting real desperate to spin out a new narrative. The interesting question is why.

Would you mind explaining further exactly what your assertion is on this point?

If you're looking for "labor share" why would you account for real-estate income? I'm pretty sure the question is about wage/salary income, it doesn't make much sense to include income from real-estate. If you're going to make those types of adjustments why not also just include income from capital gains too?

'Would you mind explaining further exactly what your assertion is on this point?'

Since when has income from real estate become part of labor share?

Particularly as the normal pattern is that those who labor pay the landlord for the privilege of being able to use the landlord's property, while the landlord performs basically no labor (apart from collecting rent, of course).

And to think I believed this so obvious that it would not require an explanation.

“while the landlord performs basically no labor (apart from collecting rent, of course).”

Haha! 1) you’ve obviously never been a landlord.

2) My leftist academic colleagues inform me that there’s such a thing as intellectual labor; why is there not also “emotional labor”?

Leftist feminist academics in particular recognize and complain that women are expected to provide free "emotional labor."

Beats right wing morons that shoot at Mexicans.

'Haha! 1) you’ve obviously never been a landlord.'

Well, Trump has. As has Kushner. Wish to tell us how much labor - you know replacing plumbing, for example - either has done?

The first point is also interesting... measuring decline depends on start and end points. But this just appears to mean they just found time intervals where labor share was not falling, but I don't believe the standard story assets labor share is falling in every possible period - mostly that it fell in the 1970s/early 1980s and then stagnated.
I can't read the whole paper but this abstract looks pretty silly.

"behavior of the US labor share after 2000 presents a puzzle"
cant help but notice the summary did not define/or alude to what the puzzle is! what is the puzzle?

It would be nice if, before criticizing a specific element of the paper, people would actually read the paper and recognize that the authors do not consider real estate to be part of labor income.

My dear fellow, you ask too much. Next you'll recommend rationality and courtesy. But this is an Economics blog you know.

My point exactly but the usual center left suspects come rushing in with the knee jerk and it’s down the rabbit hole from there....

For those who doesn't have access to the paper, could you explain what they mean controlling for residential rental income?

So, please do enlighten us to the meaning of ' accounting for residential real estate income.'

Oddly, no one has till now, even while complaining that people are actually commenting on the words cited.

"accounting for residential real estate income."

Anyone know what this means?

From a comment below, it appears to be one of those lovely made up numbers so beloved of those who imagine can openers whenever needed - 'Imputed rent is an estimate in economic theory of the rent a house owner would be willing to pay to live in his or her own house. Imputed rent can thus serve as an important measure between home owners and tenants. Imputed rent is the economic theory of imputation applied to real estate: that the value of a good is more a matter of what the buyer is willing to pay than the cost the seller incurs to create it. In this case, market rents are used to estimate the value to the property owner. Thus, for example, if one could rent a similar property for less than the costs, one is losing money on the deal and vice versa. While the idea of imputed rent applies to any capital good, it is most commonly used in reference to home ownership.' https://en.wikipedia.org/wiki/Imputed_rent

Basically, just pretend a mortgage actually represent labor share income, and voila, socialism is banished forever.

(No 1984 quote quite hits the mark - this needs an Alice in Wonderland reference to convey the brilliant absurdity.)

This all reminds me of the phases of the reaction to Piketty: first there's the denial of inequality, then there's the defense of inequality (can anyone forget Mankiw's defense - the more inequality, the better), then there's the questioning of Piketty's data, then there's the rejection of Piketty's thesis (r>g), then there's the personal attack on Piketty's policy prescription (he's French!). Did I leave out any of the phases? It's been awhile. Now we have the phases about labor share, or more accurately the falling labor share. Such is life. I prefer the Barro approach: change the formula, change the data, change the result! And all is well in the kingdom.

When the data is this noisy, anyone can say anything and smooth out the noise to support it. Picketty had one analysis of the noise. Now, it seems, these dudes have another analysis of the noise.

Pick the data that supports your prior biases. This is what makes economics and other social "sciences" so great.

Those aren't 'phases' those are aspects of the rational response to Pikky's nonsense. My favorite is pointing out that there is nothing wrong whatsoever with inequality, followed closely by Pik's weak grasp of basic facts and history.

You are arguing that Picketty is completely right? Is that your argument? Or you are arguing that the dissent is wrong?

What revealed truth do you want to sign your name to?

Hey...has anyone seen my friend Steven Pinker? I heard he hangs around here.

"When we correct for these three potential biases, we do not find a general decline in the labor share in our sample of advanced economies. "

& what remains when we account for yours? My main question is to the following conclusion..."we do not find a general decline "... the following questions...What were you expecting to find and why? There's no ideology in my question, since it applies to every economic paper I read. In general, I don't find the assessment "We don't find" or "We're not convinced" to be all that convincing.

From pg. 3: "If anything, we find that the labor share has increased slightly over the last two decades in France. We observe a decrease in the labor share in the U.S., but it is not a secular decline. The U.S. labor share shows no trend until 2000 but declines sharply between 2000 and 2015."

In the conclusion: "An important point is that the evolution of the US labor share -- which remains constant until 2000 and then decreases by about 6 points – is not shared by European countries."

US labor share fell dramatically (-6% for US vs. +1 for France) during the Bush to mid-Obama years. The labor share for the EU holds mostly steady, slight increase for France. These conclusions are based on corrections for real estate income (using imputed value for homeowners) and other biases, without which, things would have looked even worse for labor.

If I were looking to explain what happened economically in the US "during the Bush to mid-Obama years" I'd look at the Federal government - at legislation and executive decisions in the immediately preceding years. Because economies are full of time lags. So: Slick Willie.

Again: who cares? There is no reason labour should constitute a steady proportion of the economy.

It means that the greedy and crafty capitalists are extracting even more surplus value. This contradiction will result in the inevitable collapse of the system.

The labor share is not falling in general, the paper finds, but it is falling in the U.S. Why might that be?

"If labor shares dynamics differ between Europe and the US, then, this would suggest that another factor also plays a role. Gutiérrez and Philippon (2019) and Philippon (2019) argue instead that declining competition explains some of the decline in the US labor share. They show that barriers to entry have increased and antitrust enforcement has weakened in the US relative to Europe. This explains the increase in corporate profits in the US and the decline in the labor share in the US, but not in Europe."

If this post is an endorsement of the paper and its conclusions, it's nice to see Tyler coming around to the monopoly power viewpoint!

Europe doesn't have Apple, Google, Facebook, etc. I don't think the fact that the US produced these behemoths has anything to do with "barriers to entry". In fact, I would suggest it is the opposite...

A close reading shows that the US labor share is indeed falling. It is the countries in Europe where it is not. Misleading headline.

Come to Euprope where our largest Country runs roughly 66 percent of US median income. Make 33 percent less and accept that as a better deal...I’m just saying.....

Germans make 33% less on average than Americans, but they also work 25% fewer hours.

The top 5% income share ended 2016 at 35%, the same percentage the top 5% had in 2000. For reference, the top 5% income share captured a meager 21% in 1980.

Billion-dollar incomes in 2000 and 2007 could limit asset sales in down market years, opting for a couple hundred million income for five years until asset prices fully recover. Billion-dollar incomes in 2012 perhaps could avoid paying 2013’s higher income and capital gains taxes, again opting for a couple hundred million income.

Did billion-dollar incomes return in 2018?

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