Payroll Share, Real Wage and Labor Productivity across US States Ivan Mendieta-Muñoz*, Codrina Rada†, Ansel Schiavone‡ and Rudi von Arnim§ Working Paper No. 121 April 15th, 2020 ABSTRACT This paper analyzes regional contributions to the US payroll share from 1977 to 2017 and the four major business cycles throughout this period. We implement two empirical exercises. First, we decompose the US payroll share across states. Utilizing a Divisia index decomposition technique yields exact contributions of real wages, employment structure, labor productivity and relative prices across the states to the aggregate change in the payroll share. Key findings are that the decline in the aggregate (i) is driven by decoupling between real wage and labor productivity; and * Assistant Professor, Department of Economics, University of Utah †Corresponding author:
[email protected]; Associate Professor, Department of Economics, University of Utah. ‡ PhD Candidate, Department of Economics, University of Utah § Associate Professor, Department of Economics, University of Utah The authors gratefully acknowledge financial support from the Institute for New Economic Thinking (INET). We thank Peter Skott, Thomas Michl and participants to the Eastern Economic Association Conference, Boston, 2020, for their comments and suggestions. (ii) is initially driven by the rust belt states, but subsequently dominated by relatively large states. Second, we employ mixture models on real wages and labor productivity across US states to discern whether distinct mechanisms appear to generate these distributions. Univariate models (iii) indicate the possibility that two distinct mechanisms generate state labor productivities, raising the question of whether regional dualism has taken hold. Lastly, we use bivariate mixture models to investigate whether such dualism and decoupling manifest in the joint distributions of payroll shares and labor productivity, too.