Declining Labor Shares of GDP Are Not the Story of Inequality

It is a popular theme in news reporting that there has been a sharp decline in the labor share of income over the last four decades, and that this is a big part of the story of wage stagnation. The data don't quite agree.

Part of the confusion is that people often look at the labor share of GDP, a measure which includes depreciation of capital equipment. Since the depreciation share of GDP (the amount of spending needed to replace worn out or obsolete capital) has risen, that would definitionally lead to a fal...