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We estimate a Structural Vector Autoregression (SVAR) model to evaluate the relative importance of at least four alternative factors in explaining the decline of the labor share in the US. Our model is driven by permanent shocks to wage mark-ups, price mark-ups, investment specific technology and automation. The SVAR is identified using robust restrictions derived in the context of a stylized macroeconomic model. We find that a decline in the bargaining power of workers, an increase in automation and an increase in profits are the most promising explanations for the decline of the labor share. A permanent reduction in the relative price of investment leads to a mild increase in the labor share. This suggests complementarity between labor and capital, thus, ruling out capital deepening as a main driver of the labor share decline.
