Labour’s share in national income is both over- and under-explained

THE IDEA that the spoils of the modern economy are unfairly distributed has become part of public discourse in the rich world. One common villain is the growing class of wealth-owners living off the returns from capital rather than hard-earned wages, an explanation popularised by Thomas Piketty in his book, “Capital in the Twenty-First Century”, published in 2013. The idea has gained currency with politicians. And studying the “labour share”, the slice of national income earned by workers through wages, has become something of a cottage industry in economics.

A new paper by Gene Grossman and Ezra Oberfield of Princeton University trawls Google Scholar and finds that more than 12,000 economics papers containing the words “labour share” and “decline” have been written in the past decade. Their review of the research suggests that economists’ understanding of why workers are taking home a smaller slice of the pie is murky at best.

One reason for this involves measurement difficulties. Official statistics suggest that America’s labour share fell by about six to eight percentage points between the 1980s and the 2010s. But Messrs Grossman and Oberfield list a number of recent papers that cast doubt on the numbers. A change to American tax law in 1986, for instance, lowered taxes for partnerships and other “pass-through...