Intermediate Input Prices and the Labor Share
We argue that the relative price of materials is an important determinant of the labor share of income. When materials and primary inputs are complements and the profit share is positive, a higher price of materials lowers the labor share and raises the profit share of value added, without requiring markups or returns to scale to change. We show that materials-price fluctuations align with U.S. labor-share trends, provide causal evidence on this mechanism across industries and commuting zones, and quantify its importance in a dynamic quantitative model. Finally, we use our mechanism to rationalize differential labor-share trends across countries.
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Copy CitationJuanma Castro-Vincenzi and Benny Kleinman, "Intermediate Input Prices and the Labor Share," NBER Working Paper 35114 (2026), https://doi.org/10.3386/w35114.Download Citation
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