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The Trend in Labour Income Share: the Role of Technological Change and Imperfect Labour Markets

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  • Francesco Carbonero
  • Christian Offermanns
  • Enzo Weber

Abstract

The non-constancy of factor shares is drawing the attention of many researchers. We document an average drop of the labour share of 8 percentage points for eight European countries and the US between 1980 and 2007. We investigate theoretically and empirically two mechanisms: the substitution between Information Communication Technology (ICT) and labour and the presence of hiring costs. We find that the ICT-labour replacement is a promising channel to explain the decline of the labour share, though labour market frictions takes part of its explanatory power over. In particular, hiring costs have a bigger role in Europe than in the US. Finally, by modelling the elasticity of substitution between ICT and labour as a function of institutional and structural variables, we find that it correlates with the share of routine occupations (positively) and with the share of high-skill workers (negatively).

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  • Francesco Carbonero & Christian Offermanns & Enzo Weber, 2017. "The Trend in Labour Income Share: the Role of Technological Change and Imperfect Labour Markets," Working Papers 173, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:173_carbonerooffermannsweber
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    Cited by:

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    3. Hutter, Christian & Weber, Enzo, 2021. "Labour market miracle, productivity debacle: Measuring the effects of skill-biased and skill-neutral technical change," Economic Modelling, Elsevier, vol. 102(C).

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