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Macroeconomic determinants of the labour share of income: Evidence from OECD economies

Author

Listed:
  • Ivan D. TROFIMOV

    (Kolej Yayasan Saad (KYS) Business School, Malaysia)

  • Nazaria Md. ARIS

    (University of Malaysia, Sarawak, Malaysia)

  • Muhammad Khairil Firdaus Bin ROSLI

    (University of Malaysia, Sarawak, Malaysia)

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

  • Ivan D. TROFIMOV & Nazaria Md. ARIS & Muhammad Khairil Firdaus Bin ROSLI, 2018. "Macroeconomic determinants of the labour share of income: Evidence from OECD economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(616), A), pages 25-48, Autumn.
    • Handle: RePEc:agr:journl:v:3(616):y:2018:i:3(616):p:25-48
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