6/11/2019

The decline of labor’s share

"The attempt to divide all income between labor and capital is a fool’s errand. As I put it,
economists still inhabit the world of the 19th century, in which hordes of interchangeable workers in stark factories toil in the service of the owners of capital

Intangible factors matter more and more in today’s economy. You can choose to label the income that is derived from intangible factors “capital income,” in which case the “labor share” of income is declining. Or you can try to “correct” this by justifying labeling some of the intangible income as “labor” income. But what you really should be doing is abandoning the project of trying to view a modern economy through the lens of an aggregate production function f(K,L). It’s a really popular pastime, but it’s a crock."