Nicolas Clootens: nicolas.clootens[at]univ-amu.fr
Romain Ferrali: romain.ferrali[at]univ-amu.fr
The increasing income inequality in the high-income countries over the past five decades has, to a large extent, been attributed to the declining gross labor share. However, the net labor share, which is assumed to be a more adequate measure of the functional income distribution, has been flat since WWII; thus, challenging existing theories of the declining labor share and contradicts measures of asset returns. This research argues that the gross and net income shares, conventionally measured, are misleading measures of the level and the trajectory of the labor share after WWII because they omit depreciation allowances, significantly underestimate the increase in the imputed rent, and include the wage outlays of governments. Constructing novel data for the labor share for 21 OECD countries over the period 1945-2021, this research shows that the adjusted net labor share is significantly lower than traditionally thought of and has declined markedly after WWII, particularly, after 1977.