Measuring Labor's Share

Abstract

This paper considers conceptual and practical issues that arise in measuring labor's share of national income. Most importantly: How are workers defined? How is compensation defined? The current definition of labor compensation used by the Bureau of Economic Analysis (BEA) includes the salary of business owners and payments to retired workers in labor compensation. An alternative series to the BEA's standard series is presented. In addition, a simple method for decomposing labor compensation into a component due to "raw labor" and a component due to human capital is presented. Raw labor's share of national income is estimated using Census and CPS data. The share of national income attributable to raw labor increased from 9.6 percent to 13 percent between 1939 and 1959, remained at 12-13 percent between 1959 and 1979, and then fell to 5 percent by 1996.