Is the decline in labour’s share in the US driven by changes in technology and/or market power? An empirical analysis

Abstract

ABSTRACT In this paper, we provide a perspective on the explanations suggested for the decline in labour’s share in the Nonfinancial Corporations sector of US economy since 1947. The literature identifies two broad groups of explanations for marked variations in the labour share – drivers associated with production technology (e.g. increasing automation or factor augmentation) and drivers that reflect non-technology factors (e.g. increasing market power). We provide a theoretical and empirical framework to understand and estimate the contribution of technology and/or non-technology factors. The key findings are that there was a ‘decoupling’ of wage growth and productivity growth in the US Nonfinancial Corporations sector in the early 2000s, and that there is not a single explanation for the decline in labour’s share in that sector over the period 2001–2013. Changes in production technology and in market power have both contributed to the decline.