Working Paper: NBER ID: w26800
Authors: Greg Kaplan; Piotr Zoch
Abstract: We demonstrate the importance of distinguishing between the traditional use of labor for production, versus alternative uses of labor for overhead, marketing and other expansionary activities, for studying the distribution of both factor income and labor income. We use our framework to assess the impact of changes in markups on the overall labor share and on labor income inequality across occupations. We identify the production and expansionary content of different occupations from the co-movement of occupational income shares with markup-induced changes in the labor share. We find that around one-fifth of US labor income compensates expansionary activities, and that occupations with larger expansionary content have experienced the fastest wage and employment growth since 1980. Our framework can rationalize a counter-cyclical labor share in the presence of sticky prices and can be used to study the distributional effects of demand shocks, monetary policy and secular changes in competition.
Keywords: Markups; Labor Market Inequality; Nature of Work
JEL Codes: D2; D3; D4; E3; E5; J2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| markup increase (D49) | overall labor share increase (E25) |
| markup increase (D49) | income redistribution away from y type labor to n type labor (F16) |
| economic downturn (F44) | less fall in labor income for n type workers compared to y type workers (J79) |
| markup increase (D49) | labor income shares influenced by n type labor share (E25) |