The Structural Shift in the Cyclicality of the Labor Income Share for the United States.
Abstract: There is a consensus that the U.S. labor income share is countercyclical, reflecting the need for labor market insurance against business cycle fluctuations. In this paper, I document a structural change in the cyclicality of the U.S. labor income share, which has become procyclical during the last three decades. I show empirically that this recent procyclicality of the labor income share is related to the vanishing procyclicality of labor productivity and to the increase in the volatility of real wages. Additionally, I present evidence suggesting that the shift in the cyclicality of the U.S. labor income share is not due to changes in industrial composition, which implies a structural change in the U.S. labor market that happens across the different sectors of the economy. These results emphasize the importance of including the cyclicality of the labor share as a key test statistic to understand the impacts of structural change in the U.S. economy.