Raw material costs now explain why labor's share of income shrinks

A new economic paper finds that when the price of raw materials goes up, the share of income going to workers goes down. This happens even if companies do not change their pricing or efficiency, and it helps explain why wages have stagnated in some countries.

Economists have long debated why labor's share of income has been shrinking in many countries. Explanations often focused on automation, declining union power, or companies increasing their market power. This paper adds a new, quantified factor: the cost of materials. It means that even if a company is not raising prices or cutting jobs, rising input costs can still shift money away from workers and towards profits.