Hostname: page-component-76fb5796d-2lccl Total loading time: 0 Render date: 2024-04-25T12:51:09.344Z Has data issue: false hasContentIssue false
  • English
  • Français

LABOR SHARE AND GROWTH IN THE LONG RUN

Published online by Cambridge University Press:  27 March 2019

Matthieu Charpe ,
Slim Bridji  and
Peter Mcadam
Matthieu Charpe
Affiliation:
International Labour Organization
Slim Bridji
Affiliation:
HES-SO, University of Applied Sciences and ArtsWestern Switzerland
Peter Mcadam*
Affiliation:
European Central Bank
*
Address correspondence to: Peter McAdam, Directorate General Research, European Central Bank, Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany. e-mail: peter.mcadam@ecb.int.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper establishes some stylized facts of the long-run relationship between growth and labor shares using historical data for the USA (1898–2010), the United Kingdom (1856–2010), and France (1896–2010). Performing individual country time–frequency analysis, we demonstrate the existence of long-term cycles in labor share of 30–50 years explaining a major part of the variance in the data. Further, the impact of labor share on growth changes sign with the frequency considered from negative at high frequencies to positive at low frequencies. Finally, the positive coefficient associated with the labor share at low frequencies increases over time.

Keywords

Labor ShareGrowthIncome DistributionWavelet Analysis
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 7 , October 2020 , pp. 1720 - 1757
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank two anonymous referees and the Associate Editor, as well as Philippe Askenazy, Larry Ball, Samuel Bentolila, Florence Jaumotte, Gino Gancia, James Ramsey, Rainer Klump, Martin Ravallion, Etienne Wasmer and Alpo Willman for useful comments as well as audiences at the 9th International Conference on “Computational and Financial Econometrics” at the University of London, in particular Luis Aguiar-Conraria, and at the University of Bielefeld.

References

Acemoglu, D. (2003) Labor-and capital-augmenting technical change. Journal of the European Economic Association 1, 1–37.CrossRefGoogle Scholar
Acemoglu, D. (2009) Introduction to Modern Economic Growth. Princeton: Princeton University Press.Google Scholar
Acemoglu, D. and Autor, D. (2011) Skills, Tasks and Technologies: Implications for Employment and Earnings, Handbook of Labor Economics, Chapter 12, vol. 4, pp. 1043–1171. Amsterdam: Elsevier.Google Scholar
Aguiar-Conraria, L., Martins, M. M. and Soares, M. J. (2012) The yield curve and the macro-economy across time and frequencies. Journal of Economic Dynamics and Control 36, 1950–1970.CrossRefGoogle Scholar
Antràs, P. (2004) Is the US aggregate production function Cobb-Douglas? New estimates of the elasticity of substitution. Contributions to Macroeconomics 4, 1. Article 4.Google Scholar
Atkinson, A. B. (2015) Inequality: What Can Be Done? Harvard: Harvard University Press.CrossRefGoogle Scholar
Atkinson, A., Piketty, T., and Saez, E. (2011). Top incomes in the long run of history. Journal of Economic Literature 49, 3–71.CrossRefGoogle Scholar
Barro, R. (2000) Inequality and growth in a panel of countries. Journal of Economic Growth 5(1), 5–32.CrossRefGoogle Scholar
Baxter, M. and King, R. G. (1999) Measuring business cycles: Approximate band-pass filters for economic time series. Review of Economics and Statistics 81(4), 575–593.CrossRefGoogle Scholar
Bertola, G., Foellmi, R. and Zweimüller, J. (2005) Income Distribution in Macroeconomic Models. Number 8058 in Economics Books. Princeton: Princeton University Press.CrossRefGoogle Scholar
Buera, F. J. and Kaboski, J. P. (2012) The rise of the service economy. American Economic Review 102(6), 2540–2569.CrossRefGoogle Scholar
Cantore, C., León-Ledesma, M., McAdam, P. and Willman, A. (2014) Shocking stuff: Technology, hours, and factor substitution. Journal of the European Economic Association 12(1), 108–128.CrossRefGoogle Scholar
Chirinko, R. S. (2008) σ: The long and short of it. Journal of Macroeconomics 30, 671–686.CrossRefGoogle Scholar
Christiano, L. J. and Fitzgerald, T. J. (2003) The band pass filter. International Economic Review 44(2), 435–465.CrossRefGoogle Scholar
Cogley, T. and Nason, J. M. (1995) Effects of the Hodrick-Prescott filter on trend and difference stationary time series: Implications for business cycle research. Journal of Economic Dynamics and Control 19, 253–278.CrossRefGoogle Scholar
de La Grandville, O. and Klump, R. (2000) Economic growth and the elasticity of substitution: Two theorems and some suggestions. American Economic Review 90(1), 282–291.Google Scholar
Deininger, K. and Squire, L. (1998) New ways of looking at old issues: Inequality and growth. Journal of Development Economics 57(2), 259–287.CrossRefGoogle Scholar
EC (2007) The labour income share in the European Union, employment in Europe 2007.Google Scholar
Elsby, M., Hobijn, B. and Sahin, A. (2013) The decline of the U.S. labor share. Brookings Papers on Economic Activity 47(2), 1–63.CrossRefGoogle Scholar
Everts, M. (2006) Band-pass filters. Munich Personal RePEc Archive 2049, 1–24.Google Scholar
Gallegati, M. and Ramsey, J. B. (2013) Bond vs stock market’s q: Testing for stability across frequencies and over time. Journal of Empirical Finance 24(C), 138–150.CrossRefGoogle Scholar
Gallegati, M., Gallegati, M., Ramsey, J. B. and Semmler, W. (2011) The US wage Phillips curve across frequencies and over time. Oxford Bulletin of Economics and Statistics 73(4), 489–450.CrossRefGoogle Scholar
Gençay, R., Seleçuk, F. and Whitcher, B. (2002) An Introduction to Wavelets and Other Filtering Methods in Finance and Economics. San Diego: Academic Press.Google Scholar
Granger, C. W. J. (1969) Investigating causal relations by econometric models and cross-spectral methods. Econometrica 37, 3.CrossRefGoogle Scholar
Groth, C. and Madsen, J. B. (2016) Medium-term fluctuations and the “Great Ratios” of economic growth. Journal of Macroeconomics 49(C), 149–176.CrossRefGoogle Scholar
Growiec, J., McAdam, P. and Mućk, J. (2018) Endogenous labor share cycles: Theory and evidence. Journal of Economic Dynamics and Control 87(C), 74–93.CrossRefGoogle Scholar
Halter, D., Oechslin, M. and Zweimüller, J. (2014) Inequality and growth: The neglected time dimension. Journal of Economic Growth 19, 81–104.CrossRefGoogle Scholar
Harvey, A. C. and Jaeger, A. (1993) Detrending, stylized facts and the business cycle. Journal of Applied Econometrics 8(3), 231–247.CrossRefGoogle Scholar
IMF (2017) Understanding the downward trend in labor income shares. In: World Economic Outlook, April 2017: Gaining Momentum?, Chapter 3, pp. 121–172. Washington, DC: International Monetary Fund.Google Scholar
Jones, C. I. (2005) The shape of production functions and the direction of technical change. Quarterly Journal of Economics 120, 517–549.Google Scholar
Kalecki, M. (1938) The determinants of the distribution of the national income. Econometrica 6(2), 97–112.CrossRefGoogle Scholar
Karabarbounis, L. and Neiman, B. (2014) The global decline of the labor share. Quarterly Journal of Economics 129(1), 61–103.CrossRefGoogle Scholar
Keynes, J. M. (1939) Relative movements of real wages and output. Economic Journal 49, 34–51.CrossRefGoogle Scholar
Klump, R., McAdam, P. and Willman, A. (2007) Factor substitution and factor augmenting technical progress in the US. Review of Economics and Statistics 89, 183–192.CrossRefGoogle Scholar
Kramer, H. M. (2011) Bowley’s law: The diffusion of an empirical supposition into economic theory. Cahiers d’économie Politique/Papers in Political Economy 61, 19–49.CrossRefGoogle Scholar
Kurz, H. D. (2010) Technical progress, capital accumulation and income distribution in classical economics: Adam Smith, David Ricardo and Karl Marx. The European Journal of the History of Economic Thought 17(5), 1183–1222.CrossRefGoogle Scholar
Kuznets, S. (1955) Economic growth and income inequality. American Economic Review 45, 1–28.Google Scholar
León-Ledesma, M. A. and Satchi, M. (2018) Appropriate technology and the labour share. Review of Economic Studies (forthcoming. Available at: https://doi.org/10.1093/restud/rdy002.), 1–29.CrossRefGoogle Scholar
León-Ledesma, M. A., McAdam, P. and Willman, A. (2010) Identifying the elasticity of substitution with biased technical change. American Economic Review 100, 1330–1357.CrossRefGoogle Scholar
Liesner, T. (1989) One Hundred Years of Economic Statistics. New York: Facts on File Publications.Google Scholar
McAdam, P. and Willman, A. (2013) Medium run redux. Macroeconomic Dynamics 17(04), 695–727.CrossRefGoogle Scholar
Mendes, M. (2011) Inequality and Growth: An overview of the theory. Textos para discussão 131, Núcleo de Estudos e Pesquisas da Consultoria Legislativa.Google Scholar
Milanovic, B. (2018) Global Inequality: A New Approach for the Age of Globalization. Harvard: Harvard University Press.Google Scholar
Newey, W. K. and West, K. D. (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55(3), 703–708.CrossRefGoogle Scholar
Percival, D. and Walden, A. (2006). Wavelet Methods for Time Series Analysis. Cambridge: Cambridge University Press.Google Scholar
Piketty, T. (2014) Capital in the Twenty-First Century. Harvard: Harvard University Press. Translated from French by Arthur Goldhammer.CrossRefGoogle ScholarPubMed
Piketty, T. and Zucman, G. (2014) Capital is back: Wealth-income ratios in rich countries, 1700-2010. Quarterly Journal of Economics 129(3), 1255–1310.CrossRefGoogle Scholar
Piketty, T. J. and Saez, E. (2003) Income inequality in the United States, 1913-1998. Quarterly Journal of Economics 118, 1–39.CrossRefGoogle Scholar
Ramsey, J. B., Gallegati, M., Gallegati, M. and Semmler, W. (2010) Instrumental variables and wavelet decompositions. Economic Modelling 27(6), 1498–1513.CrossRefGoogle Scholar
Ricardo, D. (1821) On the Principles of Political Economy, and Taxation. London: John Murray.Google Scholar
Rognlie, M. (2015) Deciphering the fall and rise in the net capital share. Brookings Papers on Economic Activity 2015, 1–69.CrossRefGoogle Scholar
Rua, A. (2012) Money growth and inflation in the euro area: A time-frequency view. Oxford Bulletin of Economics and Statistics 74(6), 875–885.CrossRefGoogle Scholar
Schneider, D. (2011) The Labor Share: A Review of Theory and Evidence. SFB 649 discussion papers SFB649DP2011-069, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.Google Scholar
Solow, R. (1958) A skeptical note on the constancy of relative shares. American Economic Review 48(4), 618–631.Google Scholar
Uzawa, H. (1961) Neutral inventions and the stability of growth equilibrium. Review of Economic Studies 28, 117–124.CrossRefGoogle Scholar
Voitchovsky, S. (2005) Does the profile of income inequality matter for economic growth? Distinguishing between the effects of inequality in different parts of the income distribution. Journal of Economic Growth 10(3), 273–296.CrossRefGoogle Scholar