Technological Changes, Offshoring, and the Labor Share

July 2, 2019

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Format: Chicago

Weicheng Lian. Technological Changes, Offshoring, and the Labor Share, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Economic sectors, Financial institutions, Labor, Labor share, Manufacturing, Stocks, Wages

Keywords: Capital-labor elasticity, Cost of capital, Elasticity of substitution, Global, Goods trade, Investment goods, Labor cost share, Labor Share, Manufacturing, Micro elasticity, Offshoring, Offshoring proxy, Relative Cost of Capital, Stocks, Technological Changes, Wages, WP

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/142
Stock No:

WPIEA2019142
ISBN:

9781498316811
ISSN:

1018-5941

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