Jan Mischke, Hans‐Helmut Kotz, Jacques Bughin, 26 July 2019

Since the 1980s, labour compensation relative to aggregate output has been on an inexorable downward trend across major developed economies. This column deploys a simple accounting technology to tease out the driving factors behind this, focusing on the US. The findings highlight the key role of under-appreciated factors, including supercycles and boom-bust effects and rising depreciation. The analysis suggests that while the effect of some factors may dampen or reverse, others will likely continue at an uncertain pace.

Jakub Growiec, Peter McAdam, Jakub Mućk, 24 June 2019

The worldwide decline of the labour share is worrying, because the labour share is thought to be too low. This column attempts to derive an estimate of the socially optimal labour share. The calibration implies that the socially optimal share is 17% higher than the historical average. 

Cristiano Cantore, Filippo Ferroni, Miguel León-Ledesma, 27 March 2019

Despite its importance, there is no systematic empirical evidence on the effect of monetary policy shocks on the share of output allocated to wages. Using data for five developed economies, this column finds that standard models generate the ‘wrong sign’ for the effect when compared to the empirical results, and that the labour share temporarily increases following a positive shock to the interest rate. Using the standard models to analyse the distributional effects of monetary shocks could be misleading.  

Loukas Karabarbounis, Brent Neiman, 25 November 2014

The share of compensation to labour in gross value added has declined in recent decades for most countries and industries around the world. Recent work has also used the share of compensation to labour in net value added as a proxy for inequality. This column discusses that gross and net labour shares have declined together for most countries since 1975 – an outcome consistent with the worldwide decline in the relative price of investment goods.

Charles Goodhart, Philipp Erfurth, 03 November 2014

There has been a long-term downward trend in labour’s share of national income, depressing both demand and inflation, and thus prompting ever more expansionary monetary policies. This column argues that, while understandable in a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance. The authors propose policies to raise the share of equity finance in housing markets; such reforms could be extended to other sectors of the economy.


CEPR Policy Research