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Labour share developments over the past two decades: The role of public policies


  • Mathilde Pak
  • Cyrille Schwellnus


Labour share developments over the past two decades have differed widely across OECD countries, with about half of them experiencing significant declines. This paper analyses the role of public policies in shaping labour share developments across countries. The results suggest that pro-competition product market reforms raise the labour share by reducing producer rents. Labour market reforms that strengthen the bargaining position of workers, such as tightening employment protection or raising minimum wages, may raise wages in the short term but risk triggering the substitution of capital for labour in the medium term. On average, across countries, such reforms are estimated to reduce the labour share. By contrast, promoting the re-employment of workers who lose their jobs through active labour market policies unambiguously raises the labour share.

Suggested Citation

  • Mathilde Pak & Cyrille Schwellnus, 2019. "Labour share developments over the past two decades: The role of public policies," OECD Economics Department Working Papers 1541, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1541-en

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    difference-in-differences estimation; labour share; public policies;

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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