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The causes of falling wage share: sectoral and firm level evidence from developed and developing countries – what have we learned?

Author

Listed:
  • Onaran, Özlem
  • Guschanski, Alexander

Abstract

The last four decades have been characterised by drastic changes in the distribution of income between wages and profits in both OECD countries and emerging economies. We have recently analysed the causes of the decline in the wage share in the developed and developing countries for a project titled ‘The causes of falling wage share and prospects for growth with equality in a globalized economy’ for the Institute of New Economic Thinking, and this paper summarizes our findings. We provide evidence that changes in bargaining power, in particular the fall in union density and welfare state retrenchment, as well as financialization and offshoring lie at the core of rising income inequality between labour and capital in both developed and developing economies. We challenge the established consensus that inequality is an unavoidable outcome of technological change or globalisation, and show the importance of labour market institutions and social protection policies.

Suggested Citation

  • Onaran, Özlem & Guschanski, Alexander, 2018. "The causes of falling wage share: sectoral and firm level evidence from developed and developing countries – what have we learned?," Greenwich Papers in Political Economy 19373, University of Greenwich, Greenwich Political Economy Research Centre.
  • Handle: RePEc:gpe:wpaper:19373
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    File URL: http://gala.gre.ac.uk/19373/7/19373%20ONARAN_The_Causes_of_Falling_Wage_Share_2018.pdf
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    References listed on IDEAS

    as
    1. Engelbert Stockhammer, 2009. "Determinants of functional income distribution in OECD countries," IMK Studies 05-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. David Autor & David Dorn & Lawrence F. Katz & Christina Patterson & John Van Reenen, 2017. "The Fall of the Labor Share and the Rise of Superstar Firms," CEP Discussion Papers dp1482, Centre for Economic Performance, LSE.
    3. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
    4. Germán Gutiérrez & Thomas Philippon, 2017. "Declining Competition and Investment in the U.S," NBER Working Papers 23583, National Bureau of Economic Research, Inc.
    5. Robert S. Chirinko, 2008. "ó: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo Group Munich.
    6. Amit Bhaduri, 2006. "Endogenous economic growth: a new approach," Cambridge Journal of Economics, Oxford University Press, vol. 30(1), pages 69-83, January.
    7. repec:spr:eurasi:v:4:y:2014:i:1:p:3-30 is not listed on IDEAS
    8. Guschanski, Alexander & Onaran, Özlem, 2016. "Determinants of the wage share: a cross-country comparison using sectoral data," Greenwich Papers in Political Economy 15847, University of Greenwich, Greenwich Political Economy Research Centre.
    9. Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
    10. repec:spr:pharme:v:4:y:2014:i:1:p:3-30 is not listed on IDEAS
    11. John Hutchinson & Damiaan Persyn, 2012. "Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 17-43, April.
    12. Bentolila Samuel & Saint-Paul Gilles, 2003. "Explaining Movements in the Labor Share," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-33, October.
    13. José Azar & Ioana Marinescu & Marshall I. Steinbaum, 2017. "Labor Market Concentration," NBER Working Papers 24147, National Bureau of Economic Research, Inc.
    14. Guschanski, Alexander & Onaran, Özlem, 2017. "The political economy of income distribution: industry level evidence from 14 OECD countries," Greenwich Papers in Political Economy 17518, University of Greenwich, Greenwich Political Economy Research Centre.
    15. repec:bla:brjirl:v:55:y:2017:i:1:p:3-33 is not listed on IDEAS
    16. Tori, Daniele & Onaran, Özlem, 2015. "The effects of financialization on investment: evidence from firm-level data for the UK," Greenwich Papers in Political Economy 14068, University of Greenwich, Greenwich Political Economy Research Centre.
    17. Gutierrez, German & Philippon, Thomas, 2017. "Declining Competition and Investment in the U.S," CEPR Discussion Papers 12536, C.E.P.R. Discussion Papers.
    18. Eckhard Hein, 2014. "Distribution and Growth after Keynes," Books, Edward Elgar Publishing, number 15903.
    19. Guschanski, Alexander & Onaran, Özlem, 2017. "Why is the wage share falling in emerging economies? Industry level evidence," Greenwich Papers in Political Economy 17536, University of Greenwich, Greenwich Political Economy Research Centre.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    wage share; income distribution; union density; technology; offshoring; market concentration; financialisation;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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