The decline in the labor share: Evidence from Japanese manufacturers’ panel data

Abstract

This paper replicates Kehrig and Vincent (2021) using Japanese data and tests whether the overall labor share decline is led by an increase in low-labor-share firms. The results can be summarized as follows. First, although the labor share of median firms did not rise while the overall labor share was declining, the rate of decline in the labor share of the median firm was slower than the overall rate of decline. Second, the value-added share of firms with a low labor share increased while their salary share did not increase when the overall labor share declined. Third, entry and exit are not important to the decline in overall labor share, as in the United States. Fourth, the role of firms with an extremely low labor share, say under decile, which is a good explanation of the change in labor share in the United States, is limited in Japan. Fifth, the change in actual labor share is very similar to ∑ωi,initialλit, the product of the initial value-added share and labor share at the time. Sixth, firms that increased their value-added share tended to decrease their labor share.