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Demographic Change and the Labour Share of Income

  • Torsten Schmidt
  • Simeon Vosen


Despite similar levels of per capita income, education, and technology the development of labour shares in OECD countries has displayed diff erent patterns since 1960. The paper examines the role of demography in this regard. Employing an overlapping generations model we fi rst examine the mechanisms through which demographic change can aff ect labour shares. Model simulations show that demographic eff ects on the labour share are larger in open than in closed economies. Empirical estimates, conducted using panel cointegration techniques for a panel of 18 OECD countries, provide strong support for demographic eff ects on the labour share. In line with the simulation results, we also fi nd evidence that openness increases this impact.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0165.

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Length: 32 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:rwi:repape:0165
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  1. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  2. Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
  3. David Bloom & David Canning & Rick Mansfield & Michael Moore, 2006. "Demographic Change, Social Security Systems, and Savings," PGDA Working Papers 1906, Program on the Global Demography of Aging.
  4. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  5. Luca Gori & Luciano Fanti, 2007. "From the Malthusian to the Modern Growth Regime in an OLG Model with Unions," Economics Bulletin, AccessEcon, vol. 10(14), pages 1-10.
  6. repec:ebl:ecbull:v:10:y:2007:i:14:p:1-10 is not listed on IDEAS
  7. Robin Brooks, 2002. "Asset-Market Effects of the Baby Boom and Social-Security Reform," American Economic Review, American Economic Association, vol. 92(2), pages 402-406, May.
  8. Pemberton, James, 2000. "National and international privatisation of pensions," European Economic Review, Elsevier, vol. 44(10), pages 1873-1896, December.
  9. Alexander Ludwig & Joachim Winter, 2003. "Aging, pension reform, and capital flows: A multi-country simulation model," MEA discussion paper series 03028, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  10. Wagner, Martin & Hlouskova, Jaroslava, 2007. "The Performance of Panel Cointegration Methods. Results from a Large Scale Simulation Study," Economics Series 210, Institute for Advanced Studies.
  11. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  12. 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.
  13. Simone Bertoli & Francesco Farina, 2007. "The functional distribution of income: a review of the theoretical literature and of the empirical evidence around its recent pattern in European countries," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 005, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
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