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Wage share and labor productivity: empirical evidence from OECD countries

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  • Marco Amendola

  • Francesco Ruggeri

Abstract

This paper empirically examines the relationship between functional income distribution and labor productivity. In particular, it tests the hypothesis that a higher wage share promotes productivity growth by pushing firms to invest and innovate in order to preserve profit margins. Using panel data for OECD countries, the results provide strong support for this mechanism: increases in the wage share are associated with significantly higher labor productivity growth. The magnitude of the effect suggests that the contraction of wage shares in many advanced economies may explain an important part of their recent productivity slowdown. The analysis further shows that this positive link operates primarily through capital deepening, consistent with the view that wage pressures incentivize investment in laborsaving technologies. By contrast, no robust relationship is found between the wage share and Total Factor Productivity.

Suggested Citation

  • Marco Amendola & Francesco Ruggeri, 2025. "Wage share and labor productivity: empirical evidence from OECD countries," Department of Economics University of Siena 935, Department of Economics, University of Siena.
    • Handle: RePEc:usi:wpaper:935
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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