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Development and the labor share

Author

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  • Paul Maarek

    (Université de Cergy-Pontoise, THEMA)

  • Elsa Orgiazzi

    (Université de Rennes I and CREM)

Abstract

We highlight a U-shaped relationship between development and the labor share of income. We exploit the “within dimension” of a panel dataset for the labor share in the manufacturing sectors of developing countries. Data is also available at the disaggregated level for 28 manufacturing subsectors. We show that the U-shaped pattern of the labor share is also observed at the subsector level suggesting that it does not correspond to reallocation forces across sectors during the development process. We show that standard theories of develop- ment economics that feature duality on the labor market generate such a pattern. At earlier stages of development, productivity gains are not compensated by wage increases as most of the workforce’s outside opportunities remain in the traditional sector where firms’ productivity is low. At later stages, the labor share increases as the result of wage competition in the modern, high productivity sector.

Suggested Citation

  • Paul Maarek & Elsa Orgiazzi, 2015. "Development and the labor share," THEMA Working Papers 2015-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    • Handle: RePEc:ema:worpap:2015-09
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    2. Carlos A. Ibarra & Jaime Ros, 2017. "The decline of the labour share in Mexico: 1990–2015," WIDER Working Paper Series 183, World Institute for Development Economic Research (UNU-WIDER).
    3. Wu, Huiwan, 2024. "How does enforcement of social insurance law minimize income gaps within firms: From a perspective of worker bargaining power," Finance Research Letters, Elsevier, vol. 62(PB).
    4. Arif, Imran, 2021. "Productive knowledge, economic sophistication, and labor share," World Development, Elsevier, vol. 139(C).
    5. Carlos A. Ibarra & Jaime Ros, 2017. "The decline of the labour share in Mexico: 1990-2015," WIDER Working Paper Series wp-2017-183, World Institute for Development Economic Research (UNU-WIDER).
    6. Ibarra, Carlos A. & Ros, Jaime, 2019. "The decline of the labor income share in Mexico, 1990–2015," World Development, Elsevier, vol. 122(C), pages 570-584.
    7. Federico Riccio & Lorenzo Cresti & Maria Enrica Virgillito, 2022. "The labour share along global value chains. Perspectives and evidence from sectoral interdependence," LEM Papers Series 2022/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. François Facchini & Mickael Melki & Andrew Pickering, 2017. "Labour Costs and the Size of Government," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(2), pages 251-275, April.
    9. Giorgos Gouzoulis, 2022. "Financialisation, globalisation, and the industrial labour share: A comparison between Iran and Thailand," Industrial Relations Journal, Wiley Blackwell, vol. 53(1), pages 35-52, January.

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    More about this item

    Keywords

    Development; The labor share; Dual labor market;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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