Matthias Kehrig, Nicolas Vincent, 14 November 2020

A decline in the labour share of income has been documented in many countries and industries. This column uses data from US manufacturing establishments to analyse the drivers of this phenomenon. It shows that the massive reallocation of economic activity was driven by establishments that lowered their labour share as they grew in size. Yet, these low labour shares are temporary, making establishments more akin to ‘shooting stars’ than ‘superstars’. Coupled with the fact that their status is associated with higher prices, the evidence points to a significant role for demand-side forces, such as product innovation or brand power. 

Peter Robertson, Longfeng Ye, 11 September 2017

The conventional wisdom is that labour reallocation has been a key driver of China’s growth miracle, and slowing migrant labour flows and rapid wage growth have raised concerns over whether this source of growth has run its course. This column argues that the literature on growth and labour reallocation in China has been dominated by a method that, relative to the now standard growth accounting model, substantially overstates the gains. Allowing for this and for human capital differences across sectors, sectoral labour reallocation has not been a key source of productivity growth in China.

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