One of the Things We Know that Ain't so: Is U.S. Labor's Share Relatively Stable?
34 Pages Posted: 19 Jan 2005
Date Written: April 27, 2006
Robert Solow (1958) argued that, from 1929-1954, U.S. aggregate labor's share was not stable relative to what we would expect given individual industry labor's shares. I confirm and extend this result using data from 1958-1996 that includes 35 industries (roughly 2-digit SIC level) and spans the entire U.S. economy. Changes in industry shares in total value-added contribute negligibly to aggregate labor's share volatility. Industry labor's shares comovement actually adds to aggregate labor's share volatility. These findings highlight economists' imprecise understanding of one of the stylized facts of economic growth. If the great macroeconomic ratio is meaningful, it must be interpreted in terms of long-run, offsetting shifts in "services" industries versus "goods" industries, both in terms of their labor's shares and shares in total value-added.
Keywords: Labor's share, factor shares, income distribution, great ratio, balanced growth, economic growth, unbalanced growth
JEL Classification: E23, E25, O10, O11, O30, O47
Suggested Citation: Suggested Citation