Capital's Share of Income Measure

Context:
- It can be associated with a Capital Share of Income Trend.
- It can be based on Gross Value-Added or on Net Value-Added (which subtracts capital depreciation) (Rognlie, 2015).
Example(s):
- U.S. Capital Share of Income Measure.
- …
Counter-Example(s):
- Labor's Share of Income.
- Capital Productivity.
See: Capital-Augmenting Technology, Corporate After-Tax Profit.

References

Rognlie, Matthew. "Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?." Brookings papers on economic activity 2015, no. 1 (2016): 1-69.
- ABSTRACT: In the postwar era, developed economies have experienced two substantial trends in the net capital share of aggregate income: a rise during the last several decades, which is well known, and a fall of comparable magnitude that continued until the 1970s, which is less well known. Overall, the net capital share has increased since 1948, but once disaggregated this increase turns out to come entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other. Several influential accounts of the recent rise emphasize the role of increased capital accumulation, but this view is at odds with theory and evidence: it requires empirically improbable elasticities of substitution, and it presumes a correlation between the capital-income ratio and capital share that is not visible in the data. A more limited narrative that stresses scarcity and the increased cost of housing better fits the data. These results are clarified using a new, multisector model of factor shares.

https://www.brookings.edu/bpea-articles/deciphering-the-fall-and-rise-in-the-net-capital-share/
- QUOTE: Existing studies that show an increase in capital’s share of income miss the growing role of depreciation in short-lived capital, in items such as software, says MIT’s Matthew Rognlie in “Deciphering the Fall and Rise in the Net Capital Share.” Rognlie subtracts depreciation in seven large developed economies (the United States, Japan, Germany, France, the UK, Italy, and Canada) to get net capital income, and finds that the only long-term rise in capital’s share of income is in housing. Capital income elsewhere in the economy has grown moderately, but it is only recovering from a large fall that lasted from 1948 through the 1970s.

(Acemoglu, 2003) ⇒ Daron Acemoglu. (2003). “Labor‐and capital‐augmenting technical change.” In: Journal of the European Economic Association, 1(1).
- ABSTRACT: I analyze an economy in which firms can undertake both labor- and capital-augmenting technological improvements. In the long run, the economy resembles the standard growth model with purely labor-augmenting technical change, and the share of labor in GDP is constant. Along the transition path, however, there is capital-augmenting technical change and factor shares change. Tax policy and changes in labor supply or savings typically change factor shares in the short run, but have no or little effect on the long-run factor distribution of income. (JEL: O33, O14, O31, E25)

(Gollin, 2002) ⇒ Douglas Gollin. (2002). “Getting Income Shares Right.” In: Journal of political Economy, 110(2).
- ABSTRACT: Many widely used economic models implicitly assume that income shares should be identical across time and space. Although time‐series data from industrial countries appear consistent with this notion, cross‐section data generally appear to contradict the assumption. A commonly used calculation suggests that labor shares of national income vary from about .05 to about .80 in international cross‐section data. This paper suggests that the usual approach underestimates labor income in small firms. Several adjustments for calculating labor shares are identified and compared. They all yield labor shares for most countries in the range of .65–.80.

(Krueger, 1999) ⇒ Alan Krueger. (1999). “Measuring Labor's Share." American Economic Review, Papers and Proceedings, 89(2).
- ABSTRACT: This paper considers conceptual and practical issues that arise in measuring labor's share of national income. Most importantly: How are workers defined? How is compensation defined? The current definition of labor compensation used the Bureau of Economic Analysis (BEA) includes the salary of business owners and payments to retired workers in labor compensation. An alternative series to the BEA's standard series is presented. In addition, a simple method for decomposing labor compensation into a component due to raw labor' and a component due to human capital is presented. Raw labor's share of national income is estimated using Census and CPS data. The share of national income attributable to raw labor increased from 9.6 percent to 13 percent between 1939 and 1959, remained at 12-13 percent between 1959 and 1979, and fell to 5 percent by 1996.