Understanding Labour Income Share Dynamics in Europe
This paper seeks to understand labour share dynamics in Europe over the medium run. After documenting basic empirical regularities, we quantify the contribution of shifts in the sectoral and the employment composition of the economy to labour share movements. The findings from the shift-share analysis being on the descriptive side, we next identify the factors underlying labour share behaviour through a model-based approach. We proceed along the lines of Bentolila and Saint Paul (2003) but adopt a production function with capital-skill complementarity.Â We show that labour share movements are driven by a complex interplay of demand and supply conditions for capital and different skill categories of labour, the nature of technological progress and imperfect market structures.Based upon robust calibration, we show that most of the declining pattern in labour shares in nine EU15 Member States is governed by capital deepening in conjunction with capital-augmenting technical progress and labour substitution across skill categories.Â Although institutional factors also play a significant role, they appear to be of somewhat less importance.To illustrate the force of the technological explanation we quantitatively assess the dynamic impact of a permanent reduction in the fraction of unskilled employment on the labour share. We find that, for a given elasticity of substitution between the two categories of labour, the more skilled labour is complementary to capital, the more pronounced the decline in the labour share.Â Â Â
|Date of creation:||May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels|
Fax: +32 2 298.08.23
Web page: http://ec.europa.eu/economy_finance/index_en.htm
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rolf Weder & Herbert Grubel, 1993. "The New Growth Theory and Coasean economics: Institutions to capture externalities," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 129(3), pages 488-513, September.
- Olivier Blanchard & Justin Wolfers, 1999.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
NBER Working Papers
7282, National Bureau of Economic Research, Inc.
- Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
- Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L., 2001.
"Deunionization, technical change and inequality,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 55(1), pages 229-264, December.
- Peter McAdam & Alpo Willman, 2004. "Supply, Factor Shares and Inflation Persistence: Re-examining Euro-area New-Keynesian Phillips Curves," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 637-670, 09.
- Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996.
"Adjustment Costs in Factor Demand,"
CEPR Discussion Papers
1371, C.E.P.R. Discussion Papers.
- Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Francesco Caselli & Wilbur John Coleman, 2001.
"Cross-Country Technology Diffusion: The Case of Computers,"
American Economic Review,
American Economic Association, vol. 91(2), pages 328-335, May.
- Caselli, Francesco & Coleman II, Wilbur John, 2001. "Cross-Country Technology Diffusion: The Case of Computers," CEPR Discussion Papers 2744, C.E.P.R. Discussion Papers.
- Francesco Caselli & Wilbur John Coleman II, 2001. "Cross-Country Technology Diffusion: The Case of Computers," NBER Working Papers 8130, National Bureau of Economic Research, Inc.
- Alain de Serres & Stefano Scarpetta & Christine de la Maisonneuve, 2002. "Sectoral Shifts in Europe and the United States: How They Affect Aggregate Labour Shares and the Properties of Wage Equations," OECD Economics Department Working Papers 326, OECD Publishing.
- Claudia Goldin & Lawrence F. Katz, 1998.
"The Origins of Technology-Skill Complementarity,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(3), pages 693-732.
- Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000.
"Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis,"
Econometric Society, vol. 68(5), pages 1029-1054, September.
- Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
- Mika Saito, 2004. "Armington Elasticities in Intermediate Inputs Trade; A Problem in Using Multilateral Trade Data," IMF Working Papers 04/22, International Monetary Fund.
- Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
- Chris Papageorgiou & Marianne Saam, 2008.
"Two-level CES Production Technology in the Solow and Diamond Growth Models,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 110(1), pages 119-143, 03.
- Chris Papageorgiou & Marianne Saam, . "Two-Level CES Production Technology in the Solow and Diamond Growth Models," Departmental Working Papers 2005-07, Department of Economics, Louisiana State University.
- Douglas Gollin, 2002.
"Getting Income Shares Right,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 458-474, April.
- Fidel Jaramillo & Fabio Schiantarelli & Alessandro Sembenelli, 1991.
"Are Adjustment Costs for Labor Asymmetric? An Econometric Test on Panel Data for Italy,"
0021, Boston University - Industry Studies Programme.
- Jaramillo, Fidel & Schiantarelli, Fabio & Sembenelli, Alessandro, 1993. "Are Adjustment Costs for Labor Asymmetric? An Econometric Test on Panel Data for Italy," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 640-48, November.
- Jaramillo, F. & Schiantarelli, F. & Sembenelli, A., 1992. "Are Adjustment Costs for Labor Asymetric? An Econometric Test On Panel Data for Italy," Working Papers 92-13, C.V. Starr Center for Applied Economics, New York University.
- Boeri, Tito & Cramer, Ulrich, 1992. "Employment growth, incumbents and entrants : Evidence from Germany," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 545-565, December.
- Blanchard, Olivier J & Giavazzi, Francesco, 2001.
"Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets,"
CEPR Discussion Papers
2713, C.E.P.R. Discussion Papers.
- Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
- Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
- Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Bentollia, S. & Saint-Paul, G., 1999.
"Explaining Movements in the Labor Share,"
9905, Centro de Estudios Monetarios Y Financieros-.
- Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
- Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers 1958, C.E.P.R. Discussion Papers.
- Mika Saito, 2004. "Armington elasticities in intermediate inputs trade: a problem in using multilateral trade data," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 1097-1117, November.
- Hernando Zuleta & Andrew T. Young, 2007. "Labor's shares - aggregate and industry: accounting for both in a model of unbalanced growth with induced innovation," DOCUMENTOS DE TRABAJO 003105, UNIVERSIDAD DEL ROSARIO.
- Antonella Trigari, 2009.
"Equilibrium Unemployment, Job Flows, and Inflation Dynamics,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 41(1), pages 1-33, 02.
- Trigari, Antonella, 2004. "Equilibrium unemployment, job flows and inflation dynamics," Working Paper Series 0304, European Central Bank.
- Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
- Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
- Klump, Rainer & Preissler, Harald, 2000. " CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
- Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
- Fallon, P R & Layard, P R G, 1975. "Capital-Skill Complementarity, Income Distribution, and Output Accounting," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 279-301, April.
- Gerard A. Pfann & Franz C. Palm, 1993. "Asymmetric Adjustment Costs in Non-linear Labour Demand Models for the Netherlands and U.K. Manufacturing Sectors," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 397-412.
- Andrew Young, 2004. "Labor's Share Fluctuations, Biased Technical Change, and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 916-931, October.
When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0379. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO)
If references are entirely missing, you can add them using this form.