IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v87y2025icp2554-2591.html
   My bibliography  Save this article

OECD labour share trends: Factor efficiency vs. market distortions in a neoclassical framework

Author

Listed:
  • Del Río, Fernando
  • Rebelo, Francisco

Abstract

We find that, for the vast majority of the 29 OECD countries, capital efficiency has declined, while labour efficiency has increased. Moreover, capital and labour exhibit a relatively high degree of complementarity. On average, countries with a larger relative decline in capital efficiency have also experienced a greater decline in the labour share. This pattern is consistent with the neoclassical theory of functional income distribution: if capital and labour are gross complements, a decline in the relative efficiency of capital reduces the demand for labour, thereby lowering equilibrium wages and the labour share. In some countries — including the United States, the United Kingdom and Australia — this mechanism can accurately account for much of the observed evolution in the labour share, while in others — including the three largest European economies (Germany, France and Italy) — market frictions and distortions affecting labour demand have played a more prominent role. Policies aimed at halting the decline in capital efficiency, or mitigating market frictions and distortions, can therefore enhance productivity and support wage growth.

Suggested Citation

  • Del Río, Fernando & Rebelo, Francisco, 2025. "OECD labour share trends: Factor efficiency vs. market distortions in a neoclassical framework," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 2554-2591.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:2554-2591
    DOI: 10.1016/j.eap.2025.08.044
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592625003637
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2025.08.044?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:2554-2591. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.