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Higher education, employers’ monopsony power and the labour share in OECD countries

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Daudey, Emilie
Decreuse, Bruno

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Abstract

This paper examines the impact of higher education on the labour share. It is based on the following idea: as education offers adaptability skills, it should reduce employers’ monopsony power and, therefore, increase the labour share. This idea is developed in a two-sector model with search unemployment and wage competition between employers to attract/keep workers. Using panel data for eleven OECD countries, we show that the proportion of higher educated in the population has a significant positive effect on the labour share: typically, an increase of one standard deviation in higher education induces a three point increase in the labour share. The other determinants of the labour share are compatible with the theoretical model. They include the capital-output ratio (-), minimum to median wage ratio (+), union density (+). We also find that the unemployment rate has a negative and significant impact on the labour share, which, together with the positive impact of higher education, is incompatible with a three-factor model where factors are paid their marginal products.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3631.

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Date of creation: Jul 2006
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Handle: RePEc:pra:mprapa:3631

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Related research
Keywords: Search frictions Adaptability Labour share Macroeconomic panel data

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Find related papers by JEL classification:
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
I20 - Health, Education, and Welfare - - Education - - - General

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  4. Daniele Checchi & Cecilia Garcia-Peñalosa, 2005. "Labour Market Institutions and the Personal Distribution of Income in the OECD," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  5. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December. [Downloadable!] (restricted)
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  6. Dunne, Timothy & Schmitz, James A, Jr, 1995. "Wages, Employment Structure and Employer Size-Wage Premia: Their Relationship to Advanced-Technology Usage at US Manufacturing Establishments," Economica, London School of Economics and Political Science, vol. 62(245), pages 89-107, February. [Downloadable!] (restricted)
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  8. Aghion, Philippe & Howitt, Peter & Violante, Giovanni L, 2002. " General Purpose Technology and Wage Inequality," Journal of Economic Growth, Springer, vol. 7(4), pages 315-45, December. [Downloadable!] (restricted)
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  11. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November. [Downloadable!] (restricted)
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  13. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
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