Search Results
Journal Article
Top Income Inequality in the 21st Century: Some Cautionary Notes
We revisit recent empirical evidence about the rise in top income inequality in the United States, drawing attention to key issues that we believe are critical for an informed discussion about changing inequality since 1980: the definition of income (labor versus total), the unit of analysis (individual versus tax unit), the importance of partnership and S-corporation income, income shifting between the corporate and personal sectors in response to tax incentives, the definition of the top of the distribution, and trends in the middle and bottom of the distribution. Our goal is to inform ...
Working Paper
Understanding Growth Through Automation: The Neoclassical Perspective
We study how advancements in automation technology affect the division of aggregate income between capital and labor in the context of long-run growth. Our analysis focuses on the fundamental trade-off between the labor-displacing effect of automation and its positive productivity effect in an elementary task-based framework featuring a schedule of automation prices across tasks linked to the state of technology. We obtain general conditions for the automation technology and technical change driving automation to be labor-share displacing. We identify a unique task technology that reconciles ...
Working Paper
The Shift to Remote Work Lessens Wage-Growth Pressures
The recent shift to remote work raised the amenity value of employment. As compensation adjusts to share the amenity-value gains with employers, wage-growth pressures moderate. We find empirical support for this mechanism in the wage-setting behavior of US employers, and we develop novel survey data to quantify its force. Our data imply a cumulative wage-growth moderation of 2.0 percentage points over two years. This moderation offsets more than half the real-wage catchup effect that Blanchard (2022) highlights in his analysis of near-term inflation pressures. The amenity-values gains ...
Working Paper
Endogenous Bargaining Power and Declining Labor Compensation Share
We document that the protracted decline in the labor share has been accompanied by a decline in the tightness rate defined as the number of vacancies per job seekers. We argue that these two trends are related. When vacancies and job seekers are complements in the matching process, a decline in the tightness rate reduces workers’ fundamental bargaining power as defined by Hosios (1990), which in turn reduces the labor share of income. We calibrate a search and matching model extended to allow for an endogenous determination of bargaining power. The model can rationalize the common trends in ...
Working Paper
Endogenous Bargaining Power and Declining Labor Compensation Share
Workhorse search and matching models assume constant bargaining weights, while recent evidence indicates that weights vary across time and in cross section. We endogenize bargaining weights in a life-cycle search and matching model by replacing a standard Cobb-Douglas (CD) matching function with a general constant elasticity of substitution (CES) matching function and study the implications for the long-term labor share and bargaining power in the U.S. The CES model explains 64 percent of the reported decline in the labor share since 1980, while the CD model explains only 28 percent of the ...
Working Paper
Payments on Digital Platforms: Resiliency, Interoperability and Welfare
Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. This paper studies a platform’s business model choice between accepting cash and issuing tokens, as well as the implications for welfare, resiliency, and interoperability. A cash platform free rides on the existing payment infrastructure and profits from collecting transaction fees. A token platform earns seigniorage, albeit bearing the costs of setting up the system and holding reserves to mitigate the cyber risk. Tokens earn consumers a return, insulating transactions from the ...
Working Paper
The Income Share of Energy and Substitution: A Macroeconomic Approach
As the atmospheric concentration of CO2 emissions has grown to record levels, callshave grown for governments to make steeper emissions cuts, requiring to reduce an economy’s use of fossil energy dramatically. Meanwhile, in the U.S., fossil energy still met 80percent of the total energy demand as of 2019. This paper examines U.S. energy dependence, measured by its factor share, using a simple neoclassical framework in a systematicway. We find that with empirically plausible differences in substitution elasticities, particularly with a time-varying substitution elasticity between equipment ...
Journal Article
Why Is the Labor Share Declining?
The fraction of national income accruing to labor (the labor share) had been roughly constant in developed economies for much of the 20th century but has fallen since the 1980s. We review several of the leading explanations in the literature for the declining labor share. We then point to hitherto unexplored dimensions of the data and provide suggestive evidence for a new explanation. In particular, we show that the labor share began a steeper descent in 2000. This more recent break in the labor-share trend coincides with the rapid rise of software investment, which has left a larger impact ...
Working Paper
The Role of Technology and Energy Substitution in Climate Change Mitigation
Mitigating climate change is critically linked to reducing an economy’s reliance on fossil energy. This paper examines U.S. energy dependence, measured by its factor share, using a neoclassical framework in a systematic way. We propose substitution as a simple, explicit economic mechanism for climate change mitigation and understanding energy-saving technical change in terms of observed factor quantities. We show that with time-varying capital equipment and energy substitutability, changes in observed inputs alone can account for most of the variations in the income share of energy over the ...
Working Paper
Market Power, Inequality, and Financial Instability
Over the last four decades, the U.S. economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.