The Decline in Labor Compensation ’ s Share of GDP : A Structural Decomposition

A book in memory of Wassily Leontief would hardly be complete without some piece on the structure of the American economy. After all, Professor Leontief had developed his first input-output table using US data and subsequently published his first three books with the purpose of examining the structure of the American economy (Leontief, 1941, 1951, 1953a). In this contribution, we study the decline of labor compensation’s share of US GDP in the eighties and early nineties. According to data on gross domestic product constructed by the Bureau of Economic Analysis (BEA), this share steadily decreased from 59.1 to 56.0 percent between 1982 and 1997. This 3.1 percentage point drop may not seem notable. But it contrasts strongly against its steady rise of 6.6 percentage points from 1950 to 1970 (from 52.8 to 59.4 percent), when productivity rose rapidly. Moreover, it is clear that wage rates did not increase at the same pace as labor productivity during this period. Recent literature suggests many potential causes of this phenomenon. Some of the causes pertain to almost all industries of the American economy (shift effects), whereas