Technological Changes, Offshoring, and the Labor Share

58 Pages Posted: 27 Aug 2019

See all articles by Weicheng Lian

Weicheng Lian

International Monetary Fund (IMF)

Date Written: July 2019


Existing studies on the downward trend in the labor share of income mostly focus on changeswithin individual countries. I document, however, that half of the global decline in the laborshare of income can be traced to the relocation of activities between countries. I develop atwo-country model to show that when the relative price of investment goods falls, productionactivities with a small elasticity of substitution between capital and labor tend to getoffshored from high- to low-wage countries. The model provides an explanation as to whysuch relocation may drive the labor share down in both developed and developingeconomies, as well as globally.

Keywords: National accounts, Total factor productivity, Capital stocks, Financial crises, Labor markets, Labor Share, Offshoring, Technological Changes, and Relative Cost of Capital, investment good, relative price, WIOD, elasticity

JEL Classification: E23, E25, F11, F16, F21, F41, F62, F63, F66, E01,

Suggested Citation

Lian, Weicheng, Technological Changes, Offshoring, and the Labor Share (July 2019). IMF Working Paper No. 19/142, Available at SSRN:

Weicheng Lian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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