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Labour Shares and the Role of Capital and Labour Market Imperfections

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  • Lena Suchanek

Abstract

In continental Europe, labour shares in national income have exhibited considerable variation since 1970. Empirical and theoretical research suggests that the evolution of labour markets and labour market imperfections can, in part, explain this phenomenon. The author analyzes the role of capital market imperfections in the determination of the distribution of national income, comparing European and Anglo-Saxon countries. She uses a simple general-equilibrium model to trace the effects of credit and labour market imperfections on factor shares. Simulations indicate that improvements in capital markets can explain lower labour shares. An increase in the degree of employee power results in higher labour shares. Regression results confirm the author's findings. Improvements in credit markets and decreasing employee bargaining power have contributed to shrinking labour shares, especially in Europe. Openness is a negative determinant of labour shares.

Suggested Citation

  • Lena Suchanek, 2009. "Labour Shares and the Role of Capital and Labour Market Imperfections," Discussion Papers 09-2, Bank of Canada.
  • Handle: RePEc:bca:bocadp:09-2
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    File URL: http://www.bankofcanada.ca/en/res/dp/2009/dp09-2.pdf
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    References listed on IDEAS

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    Cited by:

    1. Igor Fedotenkov, 2016. "Labour Shares, Fertility and Longevity in an OLG model," Bank of Lithuania Working Paper Series 28, Bank of Lithuania.

    More about this item

    Keywords

    Economic models; Labour markets; Financial institutions;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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