Working Paper: NBER ID: w25242
Authors: Wen Chen; Bart Los; Marcel P. Timmer
Abstract: Recent studies document a decline in the share of labour and a simultaneous increase in the share of residual (‘factorless’) income in national GDP. We argue the need for study of factor incomes in cross-border production to complement country studies. We define a GVC production function that tracks the value added in each stage of production in any country-industry. We define a new residual as the difference between the value of the final good and the payments to all tangibles (capital and labour) in any stage. We focus on GVCs of manufactured goods and find the residual to be large. We interpret it as income for intangibles that are (mostly) not covered in current national accounts statistics. We document decreasing labour and increasing capital income shares over the period 2000-14. This is mainly due to increasing income for intangible assets, in particular in GVCs of durable goods. We provide evidence that suggests that the 2000s should be seen as an exceptional period in the global economy during which multinational firms benefitted from reduced labour costs through offshoring, while capitalising on existing firm-specific intangibles, such as brand names, at little marginal cost.
Keywords: Global Value Chains; Intangible Assets; Factor Incomes; Labor Share; Capital Share
JEL Codes: E01; E22; F62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in capital income shares (D33) | increase in income for intangible assets (O34) |
| decline in the share of labor income in GDP (E25) | increase in capital income (D33) |
| decline in the share of labor income in GDP (E25) | increase in income from intangible assets (O34) |
| increase in income from intangible assets (O34) | increase in capital income shares (D33) |
| international production fragmentation (F12) | increase in intangible income (O34) |