The US labor share: a TVC-SVAR approach to the causes of decline

We estimate the response of US labor share to a positive globalization, investment, productivity, demand and financial shock using two TVC-SVAR, one of which is allowed for heteroskedasticity, both identified with sign and zero restrictions. Our evidences suggest a negative effect on impact for all the shocks analyzed except for the globalization one in the heteroskedastic model. Moreover, providing an historical variance decomposition of labor share we find an overall negative contribution of financial shock to the labor share fluctuations and an important contribution of investment shock even if positive. The smooth transition model used results able to catch a non-linear relation between variables affecting the LS permanent component. The non-linearity is no longer clear in the heteroskedastic model.