Working Paper: NBER ID: w28579
Authors: Joachim Hubmer; Pascual Restrepo
Abstract: While the US labor share has declined, especially in manufacturing and retail, the labor share of a typical firm in these sectors has risen. This paper introduces a model where firms incur fixed costs to automate tasks. In response to lower capital prices, the model reproduces the labor share patterns observed in the data: large firms automate more tasks, reducing the aggregate labor share; while the median firm continues to operate a labor-intensive technology with a rising labor share. Using our model, we decompose the labor share decline and the rise in sales concentration in each sector into a part driven by lower capital prices and a part driven by reallocation to higher-markup firms. Reallocation played a minor role in explaining the labor share decline in manufacturing and some role in retail and other sectors during 1982–2012.
Keywords: No keywords provided
JEL Codes: E22; E23; E24; E25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in capital prices (G19) | increased automation (O31) |
| increased automation (O31) | decrease in aggregate labor share (E25) |
| decline in capital prices (G19) | decrease in aggregate labor share (E25) |
| increased automation (O31) | stable or increased labor share of median firm (J29) |
| reallocation towards higher-markup firms (D21) | decline in aggregate labor share (E25) |