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Declining labor shares and bargaining power: An institutional explanation

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Author Info

  • Bental, Benjamin
  • Demougin, Dominique

Abstract

We model the design of labor market institutions in an economy characterized by moral hazard and irreversible investment. In this setting, the environment setting affects the bargaining power of labor. At the optimum the allocation of bargaining power balances the aforementioned frictions. We examine the impact of improved monitoring and investigate the implication upon labor share, effort and investment. The model's predictions are consistent with recent decreasing labor shares and wages per effective labor units observed in most OECD countries. It is also consistent with rising labor productivity and declining ratio between effective labor and capital found in many of these countries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 32 (2010)
Issue (Month): 1 (March)
Pages: 443-456

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Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:443-456

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Institutions Moral hazard Irreversible investment Bargaining Labor share Productivity;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Demougin, Dominique & Helm, Carsten, 2008. "Incentive Contracts and Efficient Unemployment Benefits," Darmstadt Discussion Papers in Economics 35490, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
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  9. Hernando Zuleta, 2008. "Factor Saving Innovations and Factor Income Shares," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 836-851, October.
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Citations

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Cited by:
  1. Mirella Damiani & Fabrizio Pompei & Andrea Ricci, 2012. "Labour Shares and Employment Protection in European Economies," Quaderni del Dipartimento di Economia, Finanza e Statistica 111/2012, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  2. Marika Karanassou & Hector Sala, 2012. "Inequality and Employment Sensitivities to the Falling Labour Share," The Economic and Social Review, Economic and Social Studies, vol. 43(3), pages 343-376.
  3. Dorothee Schneider, 2011. "Monitoring, Information Technology and the Labor Share," SFB 649 Discussion Papers SFB649DP2011-066, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. repec:pra:mprapa:43050 is not listed on IDEAS
  5. Dorothee Schneider, 2011. "Bargaining, Openness, and the Labor Share," SFB 649 Discussion Papers SFB649DP2011-068, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  6. Zuleta, Hernando, 2012. "Variable factor shares, measurement and growth accounting," Economics Letters, Elsevier, vol. 114(1), pages 91-93.

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