What do we know about the labor share and the profit share? Part II: Empirical Studies

Abstract: In this second part of our study we survey the rapidly expanding empirical literature on the determinants of the functional distribution of income. Three major strands emerge: technological change did it, international trade did it, and financialization did it. All contribute to the fluctuations of the labor share and that there is a significant amount of self-reinforcement among those factors. For the case of the U.S. it seems that the factors listed above are by order of increasing importance. I conclude by noting that the falling U.S. wage shares cointegrates with rising inequality and a rising top 1 % income share. Thus, all measures of income distribution provide the same picture. Liberalization and financialization worsen economic inequality by raising top incomes, unless institutions are strongly redistributive. The labor share has also fallen for structural reasons and reasons related to economic policy. Such explanations are left to part III and IV of our study, respectively. Part I investigated the theories of income distribution