On the Optimal Labor Income Share
MetadataShow full item record
Labor's share of income has attracted interest in recent years reflecting its apparent decline. These falls, witnessed across many countries, are usually deemed undesirable. Any such assertion, however, begs the question of what is the socially optimal labor share. We address this question using a micro-founded endogenous growth model calibrated on US data. We find that in our central calibration the socially optimal labor share is 17% (11 pp) above the decentralized equilibrium, calibrated to match the average observed in history. We also study the dependence of both long-run growth equilibria on model parameters and relate our results to Piketty's ''laws of Capitalism''. Finally, we demonstrate that cyclical movements in factor income shares are socially optimal and that the decentralized equilibrium typically does not generate excess volatility.
Website of the publisherhttp://wydawnictwo.sgh.waw.pl
- KAE Working Papers 
Using this material is possible in accordance with the relevant provisions of fair use or other exceptions provided by law. Other use requires the consent of the holder.