Factor Shares From Household Survey Data

This paper proposes a method for estimating the factor shares of labor and capital using cross sectional household survey data containing detailed information on household income by source. It then applies the method to the case of Mexico, a country where factor shares are almost the opposite of those in the United States. The application of this method using data from every available household survey that is representative at the national level, corresponding to the years 1968, 1977, 1984, 1989, 1992, 1994, 1996, 1998, 2000 and 2002, yields the following results: (i) factor shares in Mexico are much closer to those in the United States than the National Income and Product Accounts (NIPA) data suggest, with labor accounting for approximately 60% of income and capital for the other 40%; and (ii) factor shares in Mexico have been relatively constant over the time period analyzed. The paper then develops the implications of the differences between factor shares obtained from the NIPA data and the household survey data for some areas of economic research, including growth accounting and the analysis of the sources of growth.