Discretionary monetary policy, quantitative easing and the decline in US labor share

Abstract

Labor shares in the US and other OECD countries have been trending downward (OECD (2012); Elsby et al. (2013)). Piketty (2014) has argued that this may be an inevitability of capitalist economies. Others have argued that globalization may be a cause (Harrison (2005); Guscina (2006); Schneider (2011)). We explore the possibility that in the US discretionary monetary expansion has played a role. We estimate the relationship between monetary policy innovations and labor share based using VARs estimated separately for the 1986-2002 ( rule-based ), 2003-2014 ( discretionary ), and 2008Q3-2014 ( quantitative easing ). We report that positive monetary policy innovations are associated with statistically significant, persistent decreases in labor shares in the later ( discretionary and quantitative easing ) periods.