Technological Changes, Offshoring, and the Labor Share
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Summary:
Existing studies on the downward trend in the labor share of income mostly focus on changes within individual countries. I document, however, that half of the global decline in the labor share of income can be traced to the relocation of activities between countries. I develop a two-country model to show that when the relative price of investment goods falls, production activities with a small elasticity of substitution between capital and labor tend to get offshored from high- to low-wage countries. The model provides an explanation as to why such relocation may drive the labor share down in both developed and developing economies, as well as globally.
Series:
Working Paper No. 2019/142
Subject:
Economic sectors Financial institutions Labor Labor share Manufacturing Stocks Wages
English
Publication Date:
July 2, 2019
ISBN/ISSN:
9781498316811/1018-5941
Stock No:
WPIEA2019142
Pages:
57
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