Maybe A Change In Methodology Accounts For A Large Portion Of The Decline in Labor's Share of U.S. Income

See The Decline in Labor's Share of U.S. Income by David Henderson of EconLog. Excerpt:

"Then I read Tim Taylor's piece and became less concerned. Basically, he highlights an article by Roc Armenter, a vice president and economist at the Federal Reserve Bank of Philadelphia. (Taylor links to the article, but every time I click on the link I get a pdf file. So if you want the article, go to Tim's post.) I think that, although Tim mentions it, he goes too quickly past one of the main reasons for the decline, namely a change in measurement.

Armenter writes:

Indeed, until 2001, the BLS's [Bureau of Labor Statistics] methodology assigned most of proprietor's income to the labor share, a bit more than four-fifths of it. Since then, less than half of proprietor's income has been classified as labor income.

How important is this? Armenter shows a graph in which he keeps the BLS's pre-2001 methodology. With no change in methodology, labor's share falls, but only from about 62 or 63 percent to about 59 percent. This is still a substantial fall, but had I known this when I was teaching last fall, I would still have pointed it out, but would not have expressed nearly the concern I did.

Armenter, using other measures, goes on to show a substantial decline. He also claims that real wages have stagnated. I think he's wrong on this because real wages are usually computed using the CPI, which overstates inflation. Interestingly, Armenter labels his Figure 4, about labor productivity versus real wages in manufacturing, "Productivity Rose While Wage Growth Stalled." I don't know what "stalled" means. His figure shows that real wages grew more slowly and that they didn't grow as quickly as labor productivity. But real wages, even given Armenter's imperfect measure (and assuming his graph is accurate), grew.

Is all of this a puzzle? Yes, and that, to his credit, is how Armenter presents it. It's also how I will present it: not necessarily a concern, but definitely something for which economists don't have a clearcut explanation."