The long and short of labor share dynamics: Capital, unions, and sectoral heterogeneity in U.S. manufacturing

This paper analyzes the decline in payroll shares across U.S. manufacturing subsectors from 1989 to 2018 by examining the short-run and long-run effects of three covariates: capital deepening, unionization coverage, and import penetration, using a Pooled Mean Group estimation strategy. The findings suggest that capital deepening and declining unionization reduce payroll shares in the long-run, while import penetration raises payroll shares in the long-run. Short-run effects are heterogeneous across subsectors. These findings are discussed in light of the evolving fragmentation of the manufacturing sector into low-payroll-share and high-payroll-share subsectors. These dynamics suggest that the determinants of income distribution are technological, institutional, and trade-induced, thereby challenging a ‘one-size-fits-all’ policy approach and calling for subsector-specific interventions.