Macroeconomic Structure and Labor's Share of Income: United States, 1950-1980

We test several hypotheses derived from Marxist crisis theories regarding the impact of macroeconomic performance on the distribution of income between labor and capital in the United States during the period 1950 to 1980. Using annual data on compensation, profits, and employment, we estimate the short-term effects of cyclical variations in unemployment, inflation, growth, and capacity utilization on labor's income share. With an additive decomposition of labor's income share, we then estimate the extent to which the observed effects can be attributed to changes in compensation, output, and employment. We find little support for the hypothesis that tight labor markets increase labor's income share by increasing the bargaining position of labor. The hypothesis that labor compensation lags behind profits over the business cycle is supported. Our results therefore favor the "realization failure" rather than the "reserve army" theory of cyclical crisis.