What Explains the Decline of the U.S. Labor Share of Income? An Analysis of State and Industry Level Data

The U.S. labor share of income has been on a secular downward trajectory since thebeginning of the new millennium. Using data that are disaggregated across both state andindustry, we show the decline in the labor share is broad-based but the extent of the fallvaries greatly. Exploiting a new data set on the task characteristics of occupations, the U.S.input-output tables, and the Current Population Survey, we find that in addition to changes inlabor institutions, technological change and different forms of trade integration lowered thelabor share. In particular, the fall was largest, on average, in industries that saw: a high initialintensity of 'routinizable' occupations; steep declines in unionization; a high level ofcompetition from imports; and a high intensity of foreign input usage. Quantitatively, we findthat the bulk of the effect comes from changes in technology that are linked to the automationof routine tasks, followed by trade globalization