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The fall (and rise) of labour share in New Zealand

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  • Benjamin Bridgman
  • Ryan Greenaway-McGrevy

Abstract

The share of national income going to labour in New Zealand fell substantially between the 1970s and the end of the century. Approximately half of this decline was then recovered in the following decade. In this paper, we argue that the decline from the mid-1980s onwards is due to public sector reforms. Corporatisation re-orientated the public trading enterprises away from a broad range of social and trading objectives towards generating profits, while increased fiscal discipline in non-market government departments reduced payroll costs. Consistent with this hypothesis, we show that most of the decline in aggregate labour share from the mid-1980s onwards can be attributed to a significant fall in the labour share of the public sector. To more formally analyse the effects of the reforms, we build a simple model of structural transition. The model yields several predictions that are consistent with observed trends in sectoral labour share. First, there is a large and permanent decline in public sector labour share after the reforms. Second, there is a smaller, short-run decline in private sector labour share that is reversed over the long run. The model can, therefore, explain not only the decline in aggregate labour share from the mid-1980s onwards; it can also explain the partial recovery in labour share beginning in 2002.

Suggested Citation

  • Benjamin Bridgman & Ryan Greenaway-McGrevy, 2018. "The fall (and rise) of labour share in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(2), pages 109-130, May.
  • Handle: RePEc:taf:nzecpp:v:52:y:2018:i:2:p:109-130
    DOI: 10.1080/00779954.2016.1219763
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    Cited by:

    1. Corey Allan & David C Maré, 2021. "Do workers share in firm success? Pass-through estimates for New Zealand," Working Papers 21_15, Motu Economic and Public Policy Research.

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