On the Anchoring Effect of Monetary Policy on the Labor Share of Income and the Rationality of Its Setting Mechanism

TL;DR

This paper examines how monetary policy influences the labor share of income, analyzing the role of policymakers and market agents, and questions the rationality of current setting mechanisms in macroeconomic theory.

Contribution

It provides a comprehensive analysis of the controversies and influences affecting the labor share, highlighting the complexities of its setting mechanism.

Findings

Policymakers effectively anchor the labor share through Open Market Operations.

Market agents significantly influence the labor share beyond policymakers.

The rationality of the current setting mechanism is critically examined.

Abstract

Modern macroeconomic monetary theory suggests that the labor share of income has effectively become a core macroe-conomic parameter anchored by top policymakers through Open Market Operations (OMO). However, the setting of this parameter remains a subject of intense economic debate. This paper provides a detailed summary of these controversies, analyzes the scope of influence exerted by market agents other than the top policymakers on the labor share, and explores the rationality of its setting mechanism.