Economic Distribution Workbench

Labor Income Share & Productivity Gap Simulator

Simulate how corporate markups, automation, globalization, and collective bargaining shift national income between workers and capital owners over time.

Scenario Parameters

Select a historical benchmark or model future economic trajectories.

Corporate Markup (Price / Marginal Cost) 1.34x

Average markup over marginal cost. Higher markups divert output to economic rents & profits.

Capital-Labor Elasticity (σ) 1.25

σ > 1 means capital easily substitutes for labor as automation hardware/software cheapens.

Worker Bargaining Power Index 42 / 100

Union density, non-compete limits, and labor market tightness (100 = 1960 peak).

Annual Productivity Growth +1.8%

Output per labor hour compound annual growth rate.

Capital Consumption / Depreciation Share 15.5%

Fast-depreciating software & tech infrastructure increases gross capital replacement cost.

National Income Distribution Telemetry

Simulated 25-Year Trajectory & Macro Component Shifts

Labor Share of Income

57.2%

-7.1% vs 1970 peak

Capital / Profit Share

42.8%

+7.1% expanded share

Divergence Gap

44.6 pts

Productivity vs Wage growth

Median Wage Transfer

-$8,450

Per worker / yr to capital

Historical Shift & Projected Share (1950 – 2045)

Labor Share (%)

Capital Share (%)

Cumulative Productivity Index

Drivers of Labor Share Compression

Monopoly Markups & Rents -3.4 pts

Capital-Augmenting Tech (σ > 1) -2.1 pts

Erosion of Bargaining Power -1.8 pts

Capital Depreciation Drag -0.9 pts

Net Projected Shift -8.2 pts

Macroeconomic Implication

Under current parameters, the labor share remains constrained near 57%. Higher product markups extract profits before payroll can adjust, while labor productivity outpaces median hourly compensation.

Reference framework: Autor et al. (2020) "The Fall of the Labor Share and the Rise of Superstar Firms" & Karabarbounis & Neiman (2014).

Telemetry synchronized. Ready for simulation.

The "Bowley's Law" Breakdown

For most of the 20th century, economists assumed the labor-capital split was constant at roughly 2/3 labor to 1/3 capital (Bowley's Law). Since 2000, that historic ratio collapsed across both the US and 35+ OECD economies.

Superstar Firms & Markups

Recent economic research reveals that a primary catalyst is industry concentration. Dominant platform and tech firms generate immense gross margins, driving the aggregate profit share up without proportional wage growth.

Productivity vs. Pay Decoupling

Between 1948 and 1973, productivity grew 96.7% while worker compensation grew 91.3%. Since 1979, productivity increased by over 65% while typical worker pay grew under 18%, shifting trillions toward equity holders.