Technological Changes, Offshoring, and the Labor Share
Jul 2019 · International Monetary Fund
Ebook
57
Pages
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About this ebook
Existing studies on the downward trend in the labor share of income mostly focus on changes within individual countries. I document, however, that half of the global decline in the labor share of income can be traced to the relocation of activities between countries. I develop a two-country model to show that when the relative price of investment goods falls, production activities with a small elasticity of substitution between capital and labor tend to get offshored from high- to low-wage countries. The model provides an explanation as to why such relocation may drive the labor share down in both developed and developing economies, as well as globally.
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