Technology has changed our workplace. Since the start of the 1980s the aggregate labor share has decreased by 6 percentage points in the United States. Many fear that a day will come in which most jobs will be automated. In many industries, workers have been replaced by machinery that can perform their jobs faster, cheaper and arguably, better.

However, is the decline in the labor share common across industries? Luis Díez Catalán, a PhD candidate from the University of Minnesota, aims to answer this question in his paper titled: The Labor Share in the Service Economy, which he presented on February 5th at the University of Navarra.

In his study, he splits the economy into non-services and services. Data shows that the former has suffered a decrease of 14 percentage points in the labor share, while the latter has experienced an increase of 6 percentage points.   

Díez Catalán finds two main reasons to explain this marked divergence. The first is a decline in the relative price of investment goods. Of course, since “technology has made us more productive”, it incentivizes investment in capital. For example, laptops have helped us be more effective in the workplace, such that some tasks now require less labor per unit of output.

This, along with labor substitutability, which is “much easier in non-service industries”, explains the aggregate decrease in the labor share and the divergence between both type of industries. In the motor industry, a robot can assemble car pieces more efficiently than a human, but in a restaurant or a hotel, a robot can’t substitute a person as easily because intuition comes into play when tending to clients. Therefore, the non-service industry have it easier to adopt technology and replace their workers relative to service industries.

Finally, this divergence is driven mostly by subindustries which prior to this technological revolution required a higher labor share. “This is a within-industry phenomenon”, concluded Díez Catalán.