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Productive knowledge, economic sophistication, and labor share

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  • Arif, Imran

Abstract

We present economic sophistication, the ability to produce complex products, as a potential determinant of labor share. Economic sophistication requires specific skills and tacit knowledge embedded in labor. It increases the bargaining power of workers, resulting in a higher labor share. We are the first to present economic sophistication as a potential determinant of labor share. We employ a fixed-effect model using panel data from 98 countries observed from 1970–2015 to find that economic sophistication has a positive and statistically significant effect on labor share. This positive effect applies to both OECD and non-OECD countries. A one standard deviation increase in economic sophistication increases labor share by about 3 percent, which corresponds to about 1.6 percentage points increase relative to the mean. Further, we show that economic sophistication and human capital have a substantial interaction effect that varies across OECD and non-OECD countries.

Suggested Citation

  • Arif, Imran, 2021. "Productive knowledge, economic sophistication, and labor share," World Development, Elsevier, vol. 139(C).
  • Handle: RePEc:eee:wdevel:v:139:y:2021:i:c:s0305750x20304307
    DOI: 10.1016/j.worlddev.2020.105303
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    More about this item

    Keywords

    Labor share; Economic sophistication; Distribution of income;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F10 - International Economics - - Trade - - - General
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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