Explaining the Decline in the US Labor Share: Taxation and Automation

Heer, Burkhard; Süssmuth, Bernd; Irmen, Andreas

doi:10.1007/s10797-022-09755-9

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Explaining the Decline in the US Labor Share: Taxation and Automation

Heer, Burkhard; Süssmuth, Bernd; Irmen, Andreas

2022 • In Interenational Tax and Public Finance

Peer reviewed

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https://hdl.handle.net/10993/53358

DOI
10.1007/s10797-022-09755-9

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Keywords :

Functional income distribution; Labor income share; Income taxes; Automation capital; Demography; Growth

Abstract :

[en] This study provides evidence for the USA that the secular decline in the labor share is not only explained by technical change or globalization, but also by the dynamics of factor taxation, automation capital (robots), and population growth. First, we empirically find indications of co-integration for the period from the last quarter of the 20th to the first decade of the twenty-first century. Permanent effects on factor shares emanate from relative factor taxation. The latter also have a lasting effect on the use of robots. Variance decompositions reveal that taxing contributes to changes in the two income shares and in automation capital. Second, we analyze and calibrate a neoclassical growth model extended to include factor taxation, automation capital, and capital adjustment costs. Labor and automation capital are perfect substitutes, whereas labor and traditional capital are complements. The model replicates the dynamics of the observed functional income distribution in the USA during the 1965–2015 period. Counterfactual experiments suggest that the fall in the labor share would have been significantly smaller if labor and capital income tax rates had remained at their respective level of the 1960s.

Disciplines :

Macroeconomics & monetary economics

Author, co-author :

Heer, Burkhard

Süssmuth, Bernd

Irmen, Andreas ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)

External co-authors :

yes

Language :

English

Title :

Explaining the Decline in the US Labor Share: Taxation and Automation

Publication date :

2022

Journal title :

Interenational Tax and Public Finance

Publisher :

Springer

Peer reviewed :

Peer reviewed

Available on ORBilu :

since 23 December 2022

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