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Effects of Globalization on Labor’s Share in National Income

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  • Ms. Anastasia Guscina

Abstract

The past two decades have seen a decline in labor's share of national income in several industrial countries. This paper analyzes the role of three factors in explaining movements in labor's share--factor-biased technological progress, openness to trade, and changes in employment protection--using a panel of 18 industrial countries over 1960-2000. Since most studies suggest that globalization and rapid technological progress (associated with accelerated information technology development) began in the mid-1980s, the sample is split in 1985 into preglobalization/pre-IT revolution and postglobalization/post-IT revolution eras. The results suggest that the decline in labor's share during the past few decades in the OECD member countries may have been largely an equilibrium, rather than a cyclical, phenomenon, as the distribution of national income between labor and capital adjusted to capital-augmenting technological progress and a more globalized world economy.

Suggested Citation

  • Ms. Anastasia Guscina, 2006. "Effects of Globalization on Labor’s Share in National Income," IMF Working Papers 2006/294, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/294
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