Understanding the Global Decline in Labor's Share
For decades, standard macroeconomic textbooks taught "Bowley’s Law" — the assumption that the share of national income paid to workers versus capital owners remained roughly constant over time (about two-thirds to labor, one-third to capital). In groundbreaking empirical research, economists Loukas Karabarbounis and Brent Neiman showed that across 59 countries, labor's share of income began a persistent slide starting in the early 1980s.
Price of Investment Goods
As computers, chips, and automated robotics grew exponentially cheaper, firms substituted away from labor into capital equipment, capturing larger shares of revenue as profit.
Superstar Firm Concentration
Dominant market leaders in tech, retail, and finance operate with massive markups and high profit margins, redistributing economic rents to shareholders rather than median payrolls.
Decline of Collective Bargaining
Erosion of worker bargaining leverage and legal protections prevents employee wages from tracking national labor productivity gains, creating a chronic widening divergence wedge.