Why are workers getting smaller pieces of the pie?

Tuesday, March 10, 2020 - 23:11 in Mathematics & Economics

It’s one of the biggest economic changes in recent decades: Workers get a smaller slice of company revenue, while a larger share is paid to capital owners and distributed as profits. Or, as economists like to say, there has been a fall in labor’s share of gross domestic product, or GDP. A new study co-authored by MIT economists uncovers a major reason for this trend: Big companies that spend more on capital and less on workers are gaining market share, while smaller firms that spend more on workers and less on capital are losing market share. That change, the researchers say, is a key reason why the labor share of GDP in the U.S. has dropped from around 67 percent in 1980 to 59 percent today, following decades of stability. “To understand this phenomenon, you need to understand the reallocation of economic activity across firms,” says MIT economist David Autor, co-author of...

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