Climate change reduced the labour share in the 21st Century

Climate change reduced the labour share in the 21st Century Masahiro Yoshida, from Waseda University’s Department of Political Science and Economics, presents a new theory and evidence linking climate change to the decline of labour share. The labour share – the portion of national income accruing to workers as wages and compensation – has fallen sharply in the United States (U.S.) since 2000 (as shown by the black line in Figure 1a). This decline disrupts the historical stability of the labour share established as one of the stylised facts of economic growth (Kaldor, 1961). It has been documented across a wide range of countries worldwide. Concerns over growing inequality between labourers and capitalists have sparked considerable debate among economists about the causes of this phenomenon, such as technological change, globalisation, shifts in market structure, and various measurement issues (see Grossman and Oberfield (2022) for a survey). This paper introduces a novel perspective by uncovering the role of climate change – another prominent global secular trend – in shaping the observed decline of the labour share.