While corporate profits represent a rising share of U.S. GDP, labor compensation represents a declining share. Recently, University of Haifa sociologist Tali Kristal posited that deunionization is the main driver of this phenomenon, a thesis we discussed late last month. Rather than focus solely on the U.S., Loukas Karabarbounis and Brent Neiman, economists at Chicago Booth, observe that the global labor share has declined since the early 1980s, and they offer the decrease in the relative price of investment goods as the explanation:

We start by showing that the share of income accruing to labor has declined in the large majority of countries and industries. Larger labor share declines occurred in countries or industries with larger declines in their relative price of investment goods. Next, we use this cross-sectional variation to estimate the shape of the production function and conclude that the decline in the relative price of investment explains roughly half of the decline in the global labor share.

One noteworthy finding is that the deterioration of labor’s share of GDP is actually less pronounced in the U.S. than it is in other major market democracies, like (in ascending order of the size of the decline) Japan, Canada, France, Italy, and Germany. In Germany, where unionization levels remain relatively high, organized labor has worked closely with large business enterprises to restrain compensation growth. This obviously does not preclude the possibility that deunionization has played a role in weakening the bargaining position of labor, but it does complicate the picture.