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Declining Labor Shares of GDP: Is There Something to Be Explained?

Summary:
One of the tasks that are keeping economists employed these days is explaining the drop in labor’s share of Gross Domestic Product (GDP). This is supposed to be a major cause of concern since the vast majority of people get most or all of their income from working.  A wide variety of theories have been ...

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One of the tasks that are keeping economists employed these days is explaining the drop in labor’s share of Gross Domestic Product (GDP). This is supposed to be a major cause of concern since the vast majority of people get most or all of their income from working. 

A wide variety of theories have been put forward to explain the decline. However, there is a big problem these theories; it is not clear that there has been much of a drop in the labor share. 

Much of the decline in shares, before recent revisions, was simply due to an increase in the share of depreciation in GDP. Depreciation is the portion of output that is needed to replace worn-out capital. This is output that is neither profit nor wages; but the greater the depreciation share, other things being equal, the lower will be the labor share.

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