FMM Working Paper 68
Bargaining Power, Structural Change, and the Falling U.S. Labor Share
One of the most significant stylized facts in the U.S. economy since the 1970s has been the decline in the share of national income accruing to labor. Many recent studies have sought to explain this trend, with most explanations focusing on structural changes such as deindustrialization, globalization, financialization, rising market concentration, and technological change. We argue that all of these forces primarily operate through a bargaining power channel measured by the cost of job loss, and that the reduction in labor’s share of income has been driven by lower bargaining power for workers. Moreover, we contend that business cycle fluctuations in the cost of job loss can help to explain the short-run behavior of the labor share as well.