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Dividing the Pie: the Determinants of Labor’s Share of Income on the Firm Level

This paper is the first to study the factors determining labor’s share of income on the level of the individual firm, employing an unusually informative panel data set. The empirical examination is concerned with Switzerland which stands out as one of the very few developed countries with a stable labor share. Broadly confirming results from previous cross-country and industry-level studies, we find that the main factor decreasing the labor share in the estimation period is the increase in the share of workers using ICT in the firm. The main reasons why Switzerland’s labor share remained almost constant are its relatively slow-rate of technological progress and shifts towards industries with above-average labor shares.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 14-352.

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Length: 48 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:kof:wpskof:14-352
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  1. Loukas Karabarbounis & Brent Neiman, 2013. "The Global Decline of the Labor Share," NBER Working Papers 19136, National Bureau of Economic Research, Inc.
  2. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 3-16, Spring.
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  4. Guy Michaels & Ashwini Natraj & John Van Reenen, 2010. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 years," NBER Working Papers 16138, National Bureau of Economic Research, Inc.
  5. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
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  7. Lawless, Martina & Whelan, Karl, 2007. "Understanding the Dynamics of Labour Shares and Inflation," Research Technical Papers 4/RT/07, Central Bank of Ireland.
  8. Eric A. Hanushek & Guido Schwerdt & Simon Wiederhold & Ludger Woessmann, 2013. "Returns to Skills Around the World: Evidence From PIAAC," Economics Working Papers 13114, Hoover Institution, Stanford University.
  9. Van Reenen, John & Caroli, Eve, 2001. "Skill-Biased Organizational Change? Evidence from a panel of British and French establishments," Economics Papers from University Paris Dauphine 123456789/10093, Paris Dauphine University.
  10. Ghazala Azmat & Alan Manning & John Van Reenen, 2012. "Privatization and the Decline of Labour's Share: International Evidence from Network Industries," Economica, London School of Economics and Political Science, vol. 79(315), pages 470-492, 07.
  11. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  12. Piva, Mariacristina & Santarelli, Enrico & Vivarelli, Marco, 2005. "The skill bias effect of technological and organisational change: Evidence and policy implications," Research Policy, Elsevier, vol. 34(2), pages 141-157, March.
  13. Alain Serres & Stefano Scarpetta & Christine Maisonneuve, 2001. "Falling Wage Shares in Europe and the United States: How Important is Aggregation Bias?," Empirica, Springer, vol. 28(4), pages 375-401, December.
  14. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, And The Demand For Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 339-376, February.
  15. Patrick A. Puhani, 2005. "Relative Supply and Demand for Skills in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(IV), pages 555-584, December.
  16. Alfonso Arpaia & Esther Pérez & Karl Pichelmann, 2009. "Understanding Labour Income Share Dynamics in Europe," European Economy - Economic Papers 379, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  17. Dorothe Bonjour & Michael Gerfin, 2001. "The unequal distribution of unequal pay - An empirical analysis of the gender wage gap in Switzerland," Empirical Economics, Springer, vol. 26(2), pages 407-427.
  18. Heinz Hollenstein & Tobias Stucki, 2012. "The 'New Firm Paradigm' and the Provision of Training: The Impact of ICT, Workplace Organization and Human Capital," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(IV), pages 557-595, December.
  19. Vining, Aidan & Globerman, steven, 1999. "A conceptual framework for understanding the outsourcing decision," European Management Journal, Elsevier, vol. 17(6), pages 645-654, December.
  20. Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers 9905, Centro de Estudios Monetarios Y Financieros-.
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  22. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  23. Vincent VANDENBERGHE, 2011. "Firm-level Evidence on Gender Wage Discrimination in the Belgian Private Economy," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011016, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  24. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
  25. Lindbeck, Assar & Snower, Dennis J., 1999. "Multi-Task Learning and the Reorganization of Work. From Tayloristic to Holistic Organization," IZA Discussion Papers 39, Institute for the Study of Labor (IZA).
  26. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
  27. Arjun Jayadev, 2007. "Capital account openness and the labour share of income," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 423-443, May.
  28. John Hutchinson & Damiaan Persyn, 2011. "Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share," Vives discussion paper series 18, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, Vives.
  29. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  30. Young, Andrew T., 2010. "One of the things we know that ain't so: Is US labor's share relatively stable?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 90-102, March.
  31. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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