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Capital’s grabbing hand? A cross-industry analysis of the decline of the labor share in OECD countries

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  • Andrea Bassanini

    (OECD
    IZA)

  • Thomas Manfredi

    (OECD)

Abstract

We examine the determinants of the within-industry decline of the labor share, using industry-level annual data for 25 OECD countries, 20 business-sector industries and covering up to 28 years. We find that total factor productivity growth—which captures (albeit imprecisely) capital-augmenting or labor-replacing technical change—and capital deepening jointly account for as much as 80 % of the within-industry contraction of the labor share. We also find that another factor explaining the aggregate decline of the labor share is the increased international competition, with higher import penetration causing a contraction of the share of labour-intensive industries in total value added. However, the fraction of the drop of the labor share explained by international competition remains limited.

Suggested Citation

  • Andrea Bassanini & Thomas Manfredi, 2014. "Capital’s grabbing hand? A cross-industry analysis of the decline of the labor share in OECD countries," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 3-30, June.
    • Handle: RePEc:spr:eurasi:v:4:y:2014:i:1:d:10.1007_s40821-014-0004-y
    DOI: 10.1007/s40821-014-0004-y
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