Question

Below is a reproduction of a chart in the Cecchetti and Schoenholtz reading that was assigned in class, but with additional detail. Study it carefully and answer the following questions.

Construction Transportation & warehousing 70% Durable goods Professional/ business services 60% Retail trade Wholesale trade Nondurable goods Arts, entertainment etc. 50% Shar 40% Education, health, social assistance etc. Information Mining 30% Other services (ex. government) Finance, insurance, real estate etc. 20% Utilities 10% 0% 096 1096 20% 30% 50% 70% 80% Employee-only labor share 2014

(a) According to the chart, how many sectors have witnessed a decline in the employee-only labor shares between 1997 and 2014? List them. Which ones have experienced an increase in employee-only labor share?

(b) What does the blue line running diagonally across the chart represent? What does it mean for the employee-only labor share of a sector (like Finance, insurance, real estate etc.) to be on the line?

(c) Visually, which sectors appear to have witnessed the greatest declines in labor share of national income? Which sectors appear to have seen the greatest gains in labor share? Do you see any commonalities in the kinds of sectors that have seen declines and the kinds of sectors that have seen gains?

(d) The article proposes the rise of “superstar firms” (which dominate their industry, take most profits and increase mark-ups) as one possible reason for the fall in labor shares. The article gives the example of Facebook and Google. Can you think of 2 other firms that might fit this category? What sectors (in the chart) would they fall under? Do those sectors indeed display declining labor share in the chart?

Answer 1

a) Total 8 sectors have witnessed a decline employee only labour share between 1997 and 2014. These sectors are - 1) Mining, 2) Information, 3) Nondurable goods, 4) Wholesale trade, 5) Retail trade, 6) Durable goods, 7) Transportation and Warehousing, 8) Construction.

There has been increase in employee only labour in some sectors and there are 5 sectors where it has been witnessed in increase in employee only labour share between 1997 and 2014. These sectors are- 1) Utilities, 2) Other services (ex.govt), 3) Education, Health, social assistance etc, 4) Arts, entertainment etc, 5) Professional/ business services.

b) The blue line which running diagonally across the chart represent that equal percentage of employee labour share in1997 and 2014. This line represents there is no change in employee only labour share in both 1997 and 2014.. The only sector which is on the line is Finance, insurance,real estate etc. This represent in this sector there is no change in employee only labour share in 1997 and 2014. In between these two year there is no change in employee only labour share.

c) In nacked eye we can see the greatest decline in employee only labour share has been in nondurable goods. It could be in Mining. But it looks like the nondurable goods decline or decrease in employee only labour share is more between 1997 and 2014. Highest gain has been in other services (ex.govt).