Abstract: Much research has documented a decline in the labor share in the United States and other countries over recent decades. This paper splits the U.S. economy between services and non-services industries and documents a general divergence in the labor share across industries between 1980 and 2015. Over this period, the labor share for services industries increased by an average of 6 percentage points, whereas for the rest of the industries it decreased by an average of 14 percentage points. A similar diverging pattern is present in several European countries. By exploiting industry-level data, this paper shows that the divergence is occurring within the large majority of sub-industries, and is related to changes in labor intensity across industries. I use a quantitative two-sector model to argue that the observed pattern is broadly consistent with differences in the substitutability between capital and labor, and differences in technical change across industries.
Luis Díez-Catalán is a Ph.D. candidate in the Department of Economics at the University of Minnesota. His primary field of research are Macroeconomics and Labor Economics and his secondary field is Applied Econometrics.