The political economy of income distribution: industry level evidence from Austria

Austria has experienced one of the steepest declines in the wage share in comparison to other European countries with a fall from 66.2% in its peak in 1978 to 52.8% in 2007 before the recession, and as of 2015 with a level of 55.5% it is 10.6%-point below its peak. We find that union density has had the strongest impact in Austria, explaining 85.1 percent of the average decline of the wage share (based on our estimations for the period of during 1996-2007). We also find a sizeable negative effect of intermediate imports (international outsourcing) and some negative effect of outward FDI as well as financialisation measured by household debt and financial payments (interest and dividend payments and income as a ratio to total resources of nonfinancial corporations). The negative impact of technology (measured by ICT capital intensity as a ratio to value added in the sector) is relatively smaller and not always significant. Results indicate that migration has had a very strong positive effect on the wage share. Increasing imports of capital and consumption goods have also had sizeable positive effects. The strategy of an equality-led development requires labour market policies aiming at pre-distribution as well as redistribution. These include strengthening the bargaining power of labour, ensuring higher collective bargaining coverage, enforcing gender equality, introducing and enforcing pay ratios to moderate wage inequality, and restoring the progressivity of the tax system.