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The Declining Labor Share of Income

  • Francisco Rodriguez


    (Human Development Report Office of the United Nations Development Programme)

  • Arjun Jayadev


    (University of Massachusetts Boston)

We use two distinct panel datasets to extract and examine data on the labor share of output. From the first, we examine trends in the economy-wide labor share and from the second, we examine trends in the labor share of the manufacturing sector over the last three decades. Both datasets show that labor shares have decreased, starting from about 1980, in most regions of the world. This finding is robust to adjustments for self-employment as well as adjustments for unbalanced panel structure. Furthermore, we present evidence that as a first approximation, this decrease is driven by declines in intra sector labor shares as opposed to movements in activity towards sectors with lower labor shares.

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Paper provided by Human Development Report Office (HDRO), United Nations Development Programme (UNDP) in its series Human Development Research Papers (2009 to present) with number HDRP-2010-36.

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Length: 31 pages
Date of creation: Nov 2010
Date of revision:
Publication status: Published as background research for the 2010 Human Development Report.
Handle: RePEc:hdr:papers:hdrp-2010-36
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  1. Branko Milanovic, 2006. "Global Income Inequality: What It Is And Why It Matters?," Working Papers 26, United Nations, Department of Economics and Social Affairs.
  2. Branko Milanovic, 2003. "The Ricardian Vice: Why Sala-i-Martin’s calculations of world income inequality are wrong," HEW 0305003, EconWPA.
  3. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
  4. Timmer, Marcel P. & Szirmai, Adam, 2000. "Productivity growth in Asian manufacturing: the structural bonus hypothesis examined," Structural Change and Economic Dynamics, Elsevier, vol. 11(4), pages 371-392, December.
  5. Sudhir Anand & Paul Segal, 2008. "What Do We Know about Global Income Inequality?," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 57-94, March.
  6. Luis F. Lopez-Calva & Nora Lustig, 2009. "The recent decline of inequality in Latin America: Argentina, Brazil, Mexico and Peru," Working Papers 140, ECINEQ, Society for the Study of Economic Inequality.
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