Discretionary Monetary Policy, Quantiative Easing, and the Decline in US Labor Share

Andrew Young, Eric Olson

Research output: Contribution to journalArticlepeer-review


Since the turn of the millenium, labor shares of income in the US and other OECD countries have been trending downward (OECD (2012); Elsby et al. (2013)). Piketty’s (2014) influential book has drawn attention to this decline in labor shares and has argued that it may be an inevitability that is inherent in capitalist economies. Other authors have argued that globalization may be a cause (Harrison (2005); Guscina (2006); Schneider (2011)). In this note we explore the possibility that in the US discretionary monetary expansion has played a role. Limited participation and Cantillon effects may lead to a transfer of income from providers of labor services to owners of capital. We estimate the relationship between monetary policy innovations and labor share based using VARs containing federal funds rate changes, monetary base growth, or the principle component of a set of monetary/interest rate variables. VARs are estimated separately for the 1986-2002 (rule-based), 2003-2014 (discretionar
Original languageEnglish
Pages (from-to)63-78
JournalEconomics and Business Letters
StatePublished - Jul 2015


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