IMF Working Papers

Technological Changes, Offshoring, and the Labor Share

By Weicheng Lian

July 2, 2019

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Weicheng Lian. Technological Changes, Offshoring, and the Labor Share, (USA: International Monetary Fund, 2019) accessed October 13, 2024

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Summary

Existing studies on the downward trend in the labor share of income mostly focus on changes within individual countries. I document, however, that half of the global decline in the labor share of income can be traced to the relocation of activities between countries. I develop a two-country model to show that when the relative price of investment goods falls, production activities with a small elasticity of substitution between capital and labor tend to get offshored from high- to low-wage countries. The model provides an explanation as to why such relocation may drive the labor share down in both developed and developing economies, as well as globally.

Subject: Economic sectors, Financial institutions, Labor, Labor share, Manufacturing, Stocks, Wages

Keywords: Capital-labor elasticity, Cost of capital, Elasticity of substitution, Global, Goods trade, Investment goods, Labor cost share, Labor Share, Manufacturing, Micro elasticity, Offshoring, Offshoring proxy, Relative Cost of Capital, Stocks, Technological Changes, Wages, WP

Publication Details

  • Pages:

    57

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/142

  • Stock No:

    WPIEA2019142

  • ISBN:

    9781498316811

  • ISSN:

    1018-5941