Closing my tabs weekly roundup

Just knowing I was going to be closing these caused me to print them out which seems like cheating except it’s not because this isn’t a real game with actual rules. So here I go closing tabs I’ve been intending to read.

First ones on the chopping block are four old NBER working papers about the labor share. Clearly, I’m not going to read these. I only read Krueger’s so I’ll share a little about that one, and why I got interested at all. I’ll be post some pictures of graphs from Goldin and Katz to explain where I was going. I was really hoping I’d find the time to read them all before today though.

1. “Concentrating on the Fall of the Labor Share” by David Autor, David Dorn, Larry Katz, Christina Patterson, and John Van Reen (2017)

Super short (only like 10 pages).

2. “The Global Decline of the Labor Share” by Loukas Karabarnounis and Brent Neiman (2013)

Not short (49 pages)

3. “Perspectives on the Labor Share” by Loukas Karabarbounis (2023)

Another long one (53 pages)

4. “Measuring Labor’s Share” by Alan Krueger (1999)

Goldilocks (18 pages). Krueger writes this pithy piece by opening with:

“Labor’s share of national income has been a topic of enduring interest to economists since the work of David Ricardo (1821) and other classical economists. Both neoclassical and Marxian theories of income distribution focus on labor’s share. And the empirical determination of factor shares was the proximate cause for the founding of the NBER. This paper considers issues that arise in measuring the fraction of national income accruing to labor, and provide alternative concepts and data to the standard Bureau of Economic Analysis (BEA) series.”

If that doesn’t get you excited, you need to go to the doctor and get checked out. I like learning about labor share because at the micro level, we buy goods and services using labor income in product markets in an effort to make our lives better — or at least the vast majority of us do. So anything and all that helps me understand the relationship between labor share and income distribution I think is very helpful. It’s helpful for understanding the wealth of nations.

Measuring labor share is pretty straightforward: you divide total compensation of workers by national income. This’ll get the part of the pie that goes to workers in principle. And so it goes that the bargaining over the surplus of the firm, a win-win ordinarily, must be divided across the inputs in production, and that happens at the micro level, and then aggregates up through labor and product markets, technology and other things into the simple number Krueger’s measuring.

But it’s not a simple number because not everything is as obviously labor in real life as it is on the white board. For instance, do you count CEO compensation? Are they workers? Then what is a worker and what is a labor input? Solve that and you can calculate the labor share, but failing to do that and the simple calculation is not so straightforward after all. So, he makes some assumptions and shows some time series plots, so here those are.

It was the bottom series that caught my eye and put me on this rabbit trail in the first place. It’s the parabolic shape — I’d seen it before. Notice how the wage and salary data rises from 1948 to 1970, then falls? This matches the same parabolic trends that Goldin and Katz document in chapters 2-3 of their book, only theirs is with respect to income inequality whereas Krueger is documenting the declining labor share. But GK nevertheless show inequality falling over that exact same time period, then a pivot that occurs around that same time and then rising income inequality again. Here’s that picture for those that want to see where I’m coming from.

The punch line is here:

“The share of national income attributable to raw labor increased from 9.6 percent to 13 percent between 1939 and 1959, remained at 12-13 percent between 1959 and 1979, and fell to 5 percent by 1996.” (Krueger 1999)

And as those GK figures show, if you laid trends in the labor share on top of trends in income inequality, they’d follow nearly the mirror image trends of one another. So there’s at least some correlation between inequality and this trend in the labor share over the 20th century and I’m sure had I finished the papers, I’d find everyone knows this so thay I’m not the first to notice. I’ll have to come back to this, though, when I have more time.