Technical Progress and Labor Share Decline in the Manufacturing and Distribution Industry

In the United States the share of national income accruing to labor has declined rapidly since the 1980s. The decline is mainly in the manufacturing and distribution sectors where both productivity and concentration increased faster than the rest of the economy. In these sectors, the decline of labor share is especially strong within large firms. We claim there is a common cause to these facts. If inputs are complementary in production and labor-saving technological progress is embodied in new machines then innovation causes a reduction in the labor share. We use a growth model with heterogeneous firms to illustrate the channels through which technological progress may drive down the labor share and increase productivity and concentration. Based on our calibration, labor-saving technical change accounts for up to $80\%$ of the labor share decline in the manufacturing and distribution sectors between 1987 and 2017