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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
    as

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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. 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.
    3. Obst, Thomas & Onaran, Özlem & Nikolaidi, Maria, 2017. "The effect of income distribution and fiscal policy on growth, investment, and budget balance: the case of Europe," Greenwich Papers in Political Economy 16088, University of Greenwich, Greenwich Political Economy Research Centre.
    4. 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.
    5. Ozlem Onaran & Thomas Obst, 2016. "Wage-led growth in the EU15 member-states: the effects of income distribution on growth, investment, trade balance and inflation," Cambridge Journal of Economics, Oxford University Press, vol. 40(6), pages 1517-1551.
    6. José Azar & Ioana Marinescu & Marshall I. Steinbaum, 2017. "Labor Market Concentration," NBER Working Papers 24147, National Bureau of Economic Research, Inc.
    7. Autor, David & Dorn, David & Katz, Lawrence F. & Patterson, Christina & Van Reenen, John, 2017. "The fall of the Labor share and the rise of superstar firms," LSE Research Online Documents on Economics 83616, London School of Economics and Political Science, LSE Library.
    8. 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.
    9. repec:bla:brjirl:v:55:y:2017:i:1:p:3-33 is not listed on IDEAS
    10. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
    11. Gutierrez, German & Philippon, Thomas, 2017. "Declining Competition and Investment in the U.S," CEPR Discussion Papers 12536, C.E.P.R. Discussion Papers.
    12. Robert S. Chirinko, 2008. "ó: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo Group Munich.
    13. Amit Bhaduri, 2006. "Endogenous economic growth: a new approach," Cambridge Journal of Economics, Oxford University Press, vol. 30(1), pages 69-83, January.
    14. repec:ces:ifofor:v:19:y:2018:i:2:p:44-54 is not listed on IDEAS
    15. Daniele Tori & Özlem Onaran, 2018. "The effects of financialization on investment: evidence from firm-level data for the UK," Cambridge Journal of Economics, Oxford University Press, vol. 42(5), pages 1393-1416.
    16. repec:spr:eurasi:v:4:y:2014:i:1:p:3-30 is not listed on IDEAS
    17. Eckhard Hein, 2014. "Distribution and Growth after Keynes," Books, Edward Elgar Publishing, number 15903.
    18. 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.
    19. Alexander Guschanski & Özlem Onaran, 2018. "Determinants of the Wage Share: A Cross-country Comparison Using Sectoral Data," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 19(2), pages 44-54, July.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How to Steal the Populists’ Clothes
      by Ngaire Woods in Project Syndicate on 2018-04-11 13:49:58

    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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