Social conflict, property rights, and the capital–labor split

Abstract

I examine some political economy aspects of the capital–labor split. In a game-theoretic general equilibrium model, rent-seekers attempt to appropriate the output of manufacturing firms on the offensive end, while such firms safeguard their income on the defensive end. Then the presence of imperfect property rights is a breeding ground for social conflict and has two indirect consequences. First, it evens out changes in the gross (before-social-conflict) labor and capital shares of total output that are caused by changes in the aggregate factor endowments, leading to more rigid equilibrium factor shares. Second, if social conflict is more labor-intensive than manufacturing, weaker property rights lead to a larger equilibrium labor share.