DP16857 Labor Share, Markups, and Input-Output Linkages - Evidence from the National Accounts

Author(s): Benjamin Bridgman, Berthold Herrendorf
Publication Date: January 2022
Keyword(s): Double marginalization, input-output linkages, Labor Share, Markups, Outsourcing, structural change
JEL(s): D33, L4, O15
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16857

The literature has suggested so many reasons for the decrease in the aggregate labor share that together they "explain" a multiple of the overall decrease [Grossman and Oberfield (2021)]. We study key causal forces and amplifying and offsetting effects in a multi-sector model with input-output linkages. We find that the decrease in the U.S. labor share reflects both sectoral forces, which can be identified with micro or NIPA data, and aggregation effects, which can be identified only with NIPA data. Specifically, the main force behind the decrease in the labor share was a similar increase in sectoral markups, which input-output linkages amplified importantly.