Abstaract (Labor Share Decline and Intellectual Property Products Capital)
We study the behavior of the US labor share over the past 70 years. We find that the capitalization of intellectual property products in the national income and product accounts entirely explains—in a purely accounting sense—the observed decline of the US labor share. We assess the implications of this result for the US macroeconomic model and discuss the way forward.
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Abstract (Growth Facts with Intellectual Property Products: An Exploration of 31 OECD New National Accounts)
We document a rise of intellectual property products (IPP) captured by up-to-date national accounts in 31 OECD countries. These countries gradually adopt the new system of national accounts (SNA08) that capitalizes IPP—which was previously treated as an intermediate expense in the pre-SNA93 accounting framework. We examine how the capitalization of IPP affects stylzed growth facts and the big ratios (Kaldor, 1957, Jones, 2016). We find that the capitalization of IPP generates (a) a decline of the accounting labor share, (b) an increase in the capital-to-output ratio across time, and (c) an increase in the rate of return to capital across time. The key accounting assumption behind the IPP capitalization implemented by national accounts is that the share of IPP rents that are attributed to capital, χ, is equal to one. That is, national accounts assume that IPP rents are entirely owed to capital. We question this accounting assumption and apply an alternative split of IPP rents between capital and labor based on the cost structure of R&D as in Koh et al. (2018). We find that this alternative split generates a secularly trendless labor share, a constant capital-to-output ratio, and a constant rate of return across time. We discuss the implications of these new measures of IPP capital—conditional on χ—for cross-country income per capita differences using standard development and growth accounting exercises.
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Host: Hans Holter