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Globalization and the Labor Share in National Income

Author

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  • Doan, Ha Thi Thanh

    (Asian Development Bank Institute)

  • Wan, Guanghua

    (Asian Development Bank Institute)

Abstract

Contradicting the conventional wisdom of constant factor shares, the portion of national income accruing to labor has been trending downward in the last three decades. This decline must have contributed to rising inequality as labor income is more evenly distributed than capital income. This study contributes to the literature on income inequality by exploring the role of globalization in driving the labor share. In particular, we focus on the impacts of trade openness and foreign direct investments (FDI) on the labor share. Using country-level panel data for 1980–2010, the study finds that trade is a significant and robust determinant of labor share. Generally speaking, export depresses while import increases the labor share. The impact of FDI, however, is insignificant. These results are similar for both developed and developing countries.

Suggested Citation

  • Doan, Ha Thi Thanh & Wan, Guanghua, 2017. "Globalization and the Labor Share in National Income," ADBI Working Papers 639, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0639
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    Cited by:

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    4. Beqiraj, Elton & Fanti, Lucrezia & Zamparelli, Luca, 2018. "Structural Change and the Wage Share: a Two-Sector Kaleckian Model," MPRA Paper 89558, University Library of Munich, Germany.
    5. Filip Abraham & Yannick Bormans, 2020. "The Impact of Superstar Firms on the Labor Share: Evidence from Belgium," De Economist, Springer, vol. 168(3), pages 369-402, September.
    6. Beqiraj, Elton & Fanti, Lucrezia & Zamparelli, Luca, 2019. "Sectoral composition of output and the wage share: The role of the service sector," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 1-10.
    7. Guschanski, Alexander & Onaran, Özlem, 2017. "The political economy of income distribution: industry level evidence from 14 OECD countries," Greenwich Papers in Political Economy 17518, University of Greenwich, Greenwich Political Economy Research Centre.
    8. Guschanski, Alexander & Onaran, Özlem, 2021. "The effect of global value chain participation on the labour share – Industry level evidence from emerging economies," Greenwich Papers in Political Economy 31973, University of Greenwich, Greenwich Political Economy Research Centre.
    9. Alessandro Bellocchi & Giovanni Marin & Giuseppe Travaglini, 2021. "The Great Fall of Labor Share:Micro Determinants for EU Countries Over 2011-2019," Working Papers 2102, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2021.
    10. Guschanski, Alexander & Onaran, Özlem, 2017. "Why is the wage share falling in emerging economies? Industry level evidence," Greenwich Papers in Political Economy 17536, University of Greenwich, Greenwich Political Economy Research Centre.
    11. Onur Özdemir, 2020. "The handicap for enhanced solidarity across advanced economies: The greater the economic openness higher the unequal distribution of income," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(4), pages 585-632, December.
    12. Mertens, Matthias, 2019. "Micro-mechanisms behind declining labour shares: Market power, production processes, and global competition," IWH-CompNet Discussion Papers 3/2019, Halle Institute for Economic Research (IWH).
    13. Małgorzata Gawrycka & Anna Szymczak, 2021. "A Panel Analysis of the Impact of Green Transformation and Globalization on the Labor Share in the National Income," Energies, MDPI, vol. 14(21), pages 1-14, October.
    14. Jagannath Mallick, 2020. "Does Global Economic Integration affect Labour Income Share in India?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(2), pages 291-309, June.
    15. Anis Chowdhury & Kwame Sundaram Jomo, 2018. "Inequality and Its Discontents," Development, Palgrave Macmillan;Society for International Deveopment, vol. 61(1), pages 21-29, December.
    16. Moonsung Kang & Innwon Park & Dong-Eun Rhee, 2017. "Korea's growth-driven trade policies: Inclusive or exclusive?," The World Economy, Wiley Blackwell, vol. 40(11), pages 2475-2490, November.
    17. Kaushik Basu, 2019. "Technology, Labor and Globalization: Contemporary Challenges," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(1), pages 1-13, March.
    18. Paul, Saumik & Isaka, Hironobu, 2019. "Labor Income Share at the Firm Level: Global Trends," IZA Discussion Papers 12852, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    labor share; wage share; globalization; imports; exports; FDI;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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