The Labor Share in a Production Network Economy

In this paper, I provide the first nonparametric decomposition for the variations in the labor share for a production network economy with distortions. This decomposition uncovers the firm-level granular sources of variations for the labor share and segments them in supply and demand shocks. The firms' share of revenue that reaches directly or indirectly labor compensation, or payment centralities, act as sufficient statistics that measure the strength of the response of the aggregate labor share to specific supply and demand shocks at the firm level. Using the input-output tables for the United States, I estimate sectoral payment centralities, showing that they are positively correlated with sectoral markdowns, negatively correlated with sectoral intermediate input intensity, and have fallen over the last two decades. Variations in sectoral payment centralities explain 99.1% of the labor share volatility, and stronger sectoral distortions in a handful of industries (e.g., credit intermediation and computers and electronics) drove the reductions in the labor share in the United States over the XXIst century.