income shares and productivity

Even more than usually for this blog, this post is my way of filing away the merest germ of an idea where I might be able to find it again and perhaps turn it into something some day.

The Cleveland Fed notes that one of the most famously stable macroeconomic ratios has broken out of its long-term range; the share of income going to labor has been dropping, particularly over the last couple of years. Part of this may be accounting — I'm going to want to think first about what is actually being measured and how it relates to theoretical constructs — but it's also interesting to note that when labor share broke above its long-term channel, in the very late sixties and early seventies, that it coincided with a secular drop in productivity growth. Combine this with the stylized fact that the benefit from innovations tends first to go to the developers (in a broad sense) of the innovation, then to investors who use the innovation, and, after a decade or two, ultimately to consumers, as the rents previously enjoyed by the investors are competed away, and it seems like a causal link might be plausible, in which case perhaps the fact that income to capital (in a time of 0 interest rates! Again, I need to be sure what we're measuring) is running in front of income to labor is an early indicator of innovations that will drive economic growth in the next two decades.

No doubt this seems like an optimistic spin, and is probably more speculative even than most things I post here.