Forecasting the labor intensity and labor income share for G7 countries in the digital age

The development of digital technology has raised concerns about a decline in labor activity. In this paper, we offer predictions of the possible dynamics of the share of labor income for G7 countries, based on an assessment of the parameters of the factor-augmenting CES function. Particular attention is paid not only to the parameter of elasticity of substitution, but also to the measurement of relative labor intensity, which is ignored in most similar works. We show that a decrease in the share of labor income under a substitution elasticity of less than one occurs due to a trend towards an increase in relative labor intensity while reducing the ratio of investment to output. This pattern is a theoretical anomaly and can be reasonably explained by the growth of monopoly power under the development of the digital economy. Continuation of this trend in the next 30 years may lead to a decrease in the share of labor income in the G7 countries by an average of 5-16%.

Automated summary

This paper predicts the potential dynamics of labor income share for G7 countries based on a factor-augmenting CES function. The decrease in labor income share may be due to an increase in relative labor intensity and a decrease in the ratio of investment to output. If this trend continues over the next 30 years, there may be a 5-16% average decrease in the share of labor income in G7 countries.