Functional Income Distribution and Inequality in the Asia-Pacific Countries

In recent decades there has been a growing interest around functional income distribution. The functional income distribution determines how output is distributed among the factors of production, such as capital and labor. Labor remuneration, expressed as a share of value added or GDP, is known as the labor share and the residual is, therefore, the capital share. The interest on functional income distribution has grown into concern with the upsurge of the recent global economic crisis, and many countries experiencing millions of jobs losses, raising unemployment rates to all-time highs. The labor income share has also captured attention, including outside the academic debate, particularly as an inequality measure. The measure is included as an indicator to assess progress towards the United Nations Sustainable Development Goals. Studies have focused on the channels related to international trade and technological progress influencing employment, wages, and the labor share. Studies have also indicated other factors such as the economic growth, foreign direct investment, and social polices. Against this backdrop, the main objective of this paper is to present an analysis of the trend and patterns of the share of labor in GDP in countries of Asia and the Pacific region, identify policy-relevant stylized facts, analyze the reasons behind observed trends, identify possible drivers and expected future changes in the labor share and in inequality, and assess the relationship between labor’s share in GDP and inequality. This paper applies statistical analysis and relevant econometric models to generate evidence in an analytically systematic manner.