Firmlevel distribution of income between capital and labor

The distribution of income between capital and labor was long considered to be relatively stable over time. However, recent research established that the share of income going to labor (the ‘labor share’) has decreased in advanced economies. This aggregate phenomenon is largely driven by a reallocation of value-added toward firms with low-labor shares, a feature that we documented in Danish data during the first phase of the URPP. The labor share is, however, only a relative measure, and a decrease in the labor share does not necessarily mean that workers face an absolute decline in income. We analyze what happens to workers' wages when the labor share declines in their firms. One may expect either that firms are low-labor share because they squeeze workers' wages, or instead that firms become more profitable but do not share these profits with workers. To answer these questions, we will get access to Danish firm-level micro data. We will follow workers during job spells to assess whether they earn a wage premium or a wage penalty from working at low-labor share firms. We will then develop a theoretical model of income distribution within firms that accounts for the empirical regularities that we will detect, and that provides a framework for deriving normative implications of the rise of low labor share firms.

Prof. David Hémous
Project Leader
Department of Economics

The data will be publicly available in the replication package.

For further information about the project and data availability please contact:  david.hemous@econ.uzh.ch