Biased Technical Change, Institutional Shift, and the Functional Distribution of Income: Who Benefits from Economic Growth?

Starting from the mid 1970s and early 1980’s, the US and other advanced economies observed a widening divergence between the growth of average and median real hourly labor compensation and the average growth of labor productivity. This decoupling between labor compensation and productivity indicates a decline in the labor share of national income. Opposite to movements in the labor share, the share of national income remunerated as capital income has increased with the rise of capital incomes concentrated largely in corporate sector profits. Key developments since the middle of the 20th century have coincided with the onset of medium-run fluctuations in global labor shares. These include technologically-driven structural changes that have altered the employment and wage structure of advanced economies: deindustrialization and labor market polarization. By focusing on the case of the US, this thesis provides an empirical and theoretical review of the dynamics behind structural change and its effect on the functional distribution of income and overall wage inequality. Definite patterns of structural change and their labor market impacts are distinguished by the particular biases of technical change, which can be seen as arising endogenously in response to relative factor prices and social forces. Other key factors when comparing cross-country outcomes in the evolution of factor shares relate to shifts in market structure and institutional arrangements that have arguably tilted the balance of power in favor of capital over labor