The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration


 We explore the possibility that a global productivity slowdown is responsible for the
widespread decline in the labor share of national income. In a neoclassical growth model
with endogenous human capital accumulation à la Ben Porath (1967) and capital-skill com-
plementarity à la Grossman et al. (2017), the steady-state labor share is positively correlated
with the rates of capital-augmenting and labor-augmenting technological progress. We cal-
ibrate the key parameters describing the balanced growth path to U.S. data for the early
postwar period and find that a one percentage point slowdown in the growth rate of per
capita income can account for between one half and all of the observed decline in the U.S.
labor share.