Advanced Search
MyIDEAS: Login

What Determines the Share of Labour in National Income? A Cross-Country Analysis

Contents:

Author Info

  • Guerriero, Marta

    ()
    (University of Manchester)

  • Sen, Kunal

    ()
    (University of Manchester)

Abstract

Recent evidence on functional income distribution suggests that the shares of capital and labour in national income vary considerably both over time and across countries. Specifically, there seems to be a general reduction in the labour share around the world, in particular from the mid-1980s onwards. Using fixed effects regression methods on a panel dataset covering 89 countries – both developing and developed – over the period 1970-2009, this study examines the mechanisms underlying the variability in the labour share. In particular, it focuses on the relationships between the labour share and measures of international trade and technological change. The results are robust across different specifications, for yearly data as well as 3- and 5-year averages, and after performing instrumental variable estimation. They suggest that trade openness and technological innovation have a positive and significant effect on the labour share. However, Foreign Direct Investments inflows and mechanisation seem to be negative drivers. Moreover, other factors, such as the level of economic development, education, and the strength of the regulations in the labour market, seem to also significantly influence functional distribution of income.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp6643.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6643.

as in new window
Length: 57 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6643

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: labour share of income; functional income distribution; globalisation; technological progress;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
  2. Florence Jaumotte & Irina Tytell, 2007. "How Has the Globalization of Labor Affected the Labor Income Share in Advanced Countries?," IMF Working Papers 07/298, International Monetary Fund.
  3. Zvi Griliches, 1990. "Patent Statistics as Economic Indicators: A Survey," NBER Working Papers 3301, National Bureau of Economic Research, Inc.
  4. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  5. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
  6. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 33-55, Summer.
  7. Ben S. Bernanke & Refet S. Gürkaynak, 2002. "Is Growth Exogenous? Taking Mankiw, Romer, and Weil Seriously," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 11-72 National Bureau of Economic Research, Inc.
  8. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  9. Lawless, Martina & Whelan, Karl, 2007. "Understanding the dynamics of labor shares and inflation," Working Paper Series 0784, European Central Bank.
  10. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  11. Christopher F Baum & Steven Stillman, 1999. "DMEXOGXT: Stata module to test consistency of OLS vs XT-IV estimates," Statistical Software Components S401103, Boston College Department of Economics, revised 18 Jun 2003.
  12. Luci Ellis & Kathryn Smith, 2007. "The global upward trend in the profit share," BIS Working Papers 231, Bank for International Settlements.
  13. Sean Dougherty, 2008. "Labour Regulation and Employment Dynamics at the State Level in India," OECD Economics Department Working Papers 624, OECD Publishing.
  14. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  15. Juan Botero & Simeon Djankov & Rafael LaPorta & Florencio López-de-Silanes & Andrei Shleifer, . "The Regulation of Labor," Working Paper 19483, Harvard University OpenScholar.
  16. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  17. Bhagwati, Jagdish, 1994. "Free Trade: Old and New Challenges," Economic Journal, Royal Economic Society, vol. 104(423), pages 231-46, March.
  18. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
  19. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  20. Robert J. Barro & Jong-Wha Lee, 2010. "A New Data Set of Educational Attainment in the World, 1950–2010," NBER Working Papers 15902, National Bureau of Economic Research, Inc.
  21. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
  22. Meschi, Elena & Vivarelli, Marco, 2009. "Trade and Income Inequality in Developing Countries," World Development, Elsevier, vol. 37(2), pages 287-302, February.
  23. Joshua J. Lewer & Hendrik Van den Berg, 2003. "How Large Is International Trade's Effect on Economic Growth?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 363-396, 07.
  24. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  25. Axel Dreher & Noel Gaston, 2008. "Has Globalization Increased Inequality?," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 516-536, 08.
  26. Besley, Timothy J. & Burgess, Robin, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," CEPR Discussion Papers 3260, C.E.P.R. Discussion Papers.
  27. repec:fth:harver:1473 is not listed on IDEAS
  28. Cohen, Daniel & Soto, Marcelo, 2001. "Growth and Human Capital: Good Data, Good Results," CEPR Discussion Papers 3025, C.E.P.R. Discussion Papers.
  29. Rama, Martin, 2003. "Globalization and workers in developing countries," Policy Research Working Paper Series 2958, The World Bank.
  30. Harrison, Ann & McLaren, John & McMillan, Margaret, 2011. "Recent perspectives on trade and inequality," Policy Research Working Paper Series 5754, The World Bank.
  31. Knowles, Stephen, 2001. "Are the Penn World Tables data on government consumption and investment being misused?," Economics Letters, Elsevier, vol. 71(2), pages 293-298, May.
  32. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  33. Zohal Hessami, 2011. "Globalization's Winners and Losers - Evidence from Life Satisfaction Data, 1975 -2001," Working Paper Series of the Department of Economics, University of Konstanz 2011-12, Department of Economics, University of Konstanz.
  34. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  35. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  36. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
  37. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  38. Paul Segerstrom & Elias Dinopoulos, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June.
  39. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 3-18, 02.
  40. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 3-16, Spring.
  41. Arpaia, Alfonso & Pérez, Esther & Pichelmann, Karl, 2009. "Understanding labour income share dynamics in Europe," MPRA Paper 15649, University Library of Munich, Germany.
  42. Richard B. Freeman, 2004. "Trade Wars: The Exaggerated Impact of Trade in Economic Debate," The World Economy, Wiley Blackwell, vol. 27(1), pages 1-23, 01.
  43. Changyuan Luo & Jun Zhang, 2010. "Declining Labor Share: Is China's Case Different?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(6), pages 1-18.
  44. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  45. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
  46. Emilie Daudey & Cecilia Garcia-Penalosa, 2007. "The personal and the factor distributions of income in a cross-section of countries," Journal of Development Studies, Taylor & Francis Journals, vol. 43(5), pages 812-829.
  47. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
  48. Arjun Jayadev, 2007. "Capital account openness and the labour share of income," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 423-443, May.
  49. Paul R. Krugman, 2008. "Trade and Wages, Reconsidered," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 103-154.
  50. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  51. Ghazala Azmat & Alan Manning & John Van Reenen, 2012. "Privatization and the Decline of Labour's Share: International Evidence from Network Industries," Economica, London School of Economics and Political Science, vol. 79(315), pages 470-492, 07.
  52. Alvaro Forteza & Martin Rama, 2006. "Labor Market 'Rigidity' and the Success of Economic Reforms Across More Than 100 Countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(1), pages 75-105.
  53. Bergh , Andreas & Nilsson, Therese, 2008. "Do economic liberalization and globalization increase income inequality?," Working Papers 2008:12, Lund University, Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Christoph Schinke, 2014. "Government Ideology, Globalization, and Top Income Shares in OECD Countries," Ifo Working Paper Series Ifo Working Paper No. 181, Ifo Institute for Economic Research at the University of Munich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp6643. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.