Globalization and the Labor Share in the United States

This paper examines to what extent globalization has contributed to the decline in the labor share of US national income. It argues that globalization can influence the national labor share (NLS), even though its impacts first occur to the tradable sector. It then empirically estimates the effect of globalization on the labor share in the manufacturing sector, and uses the resulting estimates to infer the effect of globalization on the NLS. Our estimations indicate that not all globalization indicators are negative on the labor share. However, between 1999 and 2009, the included indicators of globalization cut the manufacturing labor share by about 3-6 percentage points, directly contributing to about 20-36 percent of the decline in the NLS in that period. Moreover, that tally is very likely to underestimate the total effect of globalization on the US labor share because the paper's estimates do not capture the indirect effect of globalization on the labor share of the non-tradable sector.