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The Labor Share in the Long Term: A Decline?

Abstract : We challenge the accepted wisdom of a global secular decline in the labor share. A simple theoretical model is proposed to highlight the main factors of change in the labor share. We document three issues in the existing literature: (i) starting periods for the empirical analysis; (ii) accounting for self employment; and (iii) accounting for residential real estate income. An empirical analysis is carried out since the post war period for France and the United States, and since the 1990s for ten developed countries and on a six country “euro area”. How the three questions above are addressed is crucial to the diagnosis. When the biases that may arise with the three issues mentioned above are eliminated, the labor share in the market sector does not show a general downward or upward trend. The choice of period has a huge impact, as does the treatment of real estate services, whose inclusion or not in the value added can result in significantly different trends.
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Gilbert Cette, Lorraine Koehl, Thomas Philippon. The Labor Share in the Long Term: A Decline?. Economie et Statistique / Economics and Statistics, INSEE, 2019, pp.35-51. ⟨10.24187/ecostat.2019.510t.1993⟩. ⟨hal-02446713⟩

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