The Decline of the Labor Share in India
Abstract: India’s labor share of income declined by seven percentage points over the three decades since the 1980s, a sharper fall than global trends. Within-industry labor-share changes account for 55% of this decline, while shifts in industries’ value-added shares account for 14%, and their co-movement with within-industry labor shares account for 31%. I develop a multi-sector general equilibrium model to study how structural change interacts with two leading mechanisms – falling relative prices of investment goods (RPI) and rising markups. Using Indian firm-level data and sectoral KLEMS–RBI accounts, I find that the decline in RPI best explains the observed co-movement of labor shares and value-added shares.
The Feldstein-Horioka Puzzle, A Global Glut of Savings, and Omitted Variable Bias: 1970-2023, Leightner, Jonathan E. and Sinha, Anjali (2025), Journal of Risk and Financial Management 18(12), 676. https://doi.org/10.3390/jrfm18120676
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