Working Paper: NBER ID: w25275
Authors: Matthias Kehrig; Nicolas Vincent
Abstract: The labor share in U.S. manufacturing declined from 62 percentage points (ppts) in 1967 to 41 ppts in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppts during the same period. Using micro-level data, we document five salient facts: (1) since the 1980s, there has been a dramatic reallocation of value added toward the lower end of the labor share distribution; (2) this aggregate reallocation is not due to entry/exit, to “superstars” growing faster or to large establishments lowering their labor shares, but is instead due to units whose labor share fell as they grew in size; (3) low labor share (LL) establishments benefit from high revenue labor productivity, not low wages; (4) they also enjoy a product price premium relative to their peers, pointing to a significant role for demand-side forces; and (5) they have only temporarily lower labor shares that rebound after five to eight years. This transient pattern has become more pronounced over time, and the dynamics of value added and employment are increasingly disconnected.
Keywords: Labor Share; Demand-Side Factors; Micro-Level Dynamics; Manufacturing; Value Added
JEL Codes: E21; L11; L20; L64; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Demand-side shocks (E32) | Labor share dynamics (J29) |
| Labor share decline (J39) | Smaller establishments' labor shares fell as they grew in size (J39) |
| Low labor share establishments (J39) | High revenue labor productivity (J39) |
| Labor share fluctuations (J49) | Transient status of low labor share establishments (J63) |
| Disconnection of value added and employment dynamics (J63) | Demand factors are central to understanding labor share trends (J23) |