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The Age-Distribution of Earnings and the Decline in Labor's Share

Author

Listed:
  • Jacob Short

    (University of Western Ontario)

  • Andrew Glover

    (University of Texas Austin)

Abstract
We estimate the effect of the age-distribution of earnings on factor shares of income. We derive an income accounting formula when wages differ from marginal products by a proportional earnings wedge that varies over age and time. Under this generalized wage-setting, the age-distribution of earnings affects labor's share even if production is Cobb Douglas. We estimate the age-profile of earnings wedges using cross-sectoral data. Our estimates imply a rising wedge over the lifecycle, with sixty-five year olds receiving about one third of their marginal product relative to twenty-five year olds. Our estimates imply that 75% of the post-2000 decline in US labor's share is due to aging and that many countries have likely experience age-related declines in labor's share in recent years.

Suggested Citation

  • Jacob Short & Andrew Glover, 2017. "The Age-Distribution of Earnings and the Decline in Labor's Share," 2017 Meeting Papers 1369, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1369
    as

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    References listed on IDEAS

    as
    1. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    2. Robert Z. Lawrence, 2015. "Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account," NBER Working Papers 21296, National Bureau of Economic Research, Inc.
    3. Alvarez-Cuadrado, Francisco & Long, Ngo Van & Poschke, Markus, 2018. "Capital-labor substitution, structural change and the labor income share," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 206-231.
    4. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    5. Dongya Koh & Raül Santaeulàlia‐Llopis & Yu Zheng, 2020. "Labor Share Decline and Intellectual Property Products Capital," Econometrica, Econometric Society, vol. 88(6), pages 2609-2628, November.
    6. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-792, March.
    7. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Matthias Kehrig & Nicolas Vincent, 2017. "Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline," CESifo Working Paper Series 6454, CESifo.
    2. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.

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