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Macroeconomic Determinants of the Labour Share of Income: Evidence from OECD Economies

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  • Trofimov, Ivan D.
  • Md. Aris, Nazaria
  • Bin Rosli, Muhammad K. F.

Abstract

The study investigates the relationships between the labour share of income and several macroeconomic variables – the GDP growth, inflation, unemployment, as well as GDP gap and capacity utilization – in industrialised economies between 1960 and the 2010s. Three complementary hypotheses that relate macroeconomic determinants to the labour share dynamics are considered: 'overhead labour' hypothesis, 'realization theory/wage lag' hypothesis and the 'rising strength of labour' hypothesis. The study employs a sequential procedure: testing for the stationarity properties of the variables, using bounds test to identify the presence of cointegrating relationships, and estimating long-run relationships using ARDL or OLS methods. The results show that all three hypotheses are supported only in a limited number of economies, whilst in the majority of cases only certain relationships are prominent. On the whole, the GDP growth rate, the unemployment rate, and to a smaller extent capacity are found to be the principal determinants of the labour share, while change in the level of prices is of subsidiary importance.

Suggested Citation

  • Trofimov, Ivan D. & Md. Aris, Nazaria & Bin Rosli, Muhammad K. F., 2018. "Macroeconomic Determinants of the Labour Share of Income: Evidence from OECD Economies," MPRA Paper 85597, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:85597
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    References listed on IDEAS

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    More about this item

    Keywords

    Labour share; time series; macroeconomic determinants;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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