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The Fall of the Labor Income Share in Advanced Economies

Author

Listed:
  • Ángel Estrada

    (Banco de España)

  • Eva Valdeolivas

    (Banco de España)

Abstract

The share of labor income in GD P is a key determinant of very important economic variables, such as competitiveness, inflation, human capital accumulation, demand and income distribution. The simplest economic models predict that the share of labor income will fluctuate around a stable value of long-term equilibrium. However, in the past three decades there has been a downward trend in many countries, especially in developed countries. To identify the reasons behind this trend, it is necessary, first, to refine the measurement of this variable, taking into account, in particular the non-wage employment, the role played by non-market economy and the effect of sectoral reallocation of activity. Second, different theoretical explanations are contrasted, such as the effect of technological factors (factor complementarity between capital and skilled labor), international trade and changes in the regulation of product markets and labor, taking into account the cyclical position of the economy. This analysis reveals that technological factors appear to be key determinants of this trend, and that the share of labor income is procyclical, but is delayed by one year with respect to fluctuations in production.

Suggested Citation

  • Ángel Estrada & Eva Valdeolivas, 2014. "The Fall of the Labor Income Share in Advanced Economies," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(70), pages 47-81, June.
    • Handle: RePEc:bcr:ensayo:v:1:y:2014:i:70:p:47-81
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    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/70_Estrada.pdf
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    References listed on IDEAS

    as
    1. Olympia Bover, 2008. "The Spanish Survey of Household Finances (EFF): description and methods of the 2005 wave," Occasional Papers 0803, Banco de España.
    2. Olympia Bover, 2008. "Oversampling of the wealthy in the Spanish Survey of Household Finances (EFF)," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 56th ISI Session, Lisbon, August 2007, volume 28, pages 399-402, Bank for International Settlements.
    3. Sarai Criado & Adrian van Rixtel, 2008. "Structured finance and the financial turmoil of 2007-2008: and introductory overview," Occasional Papers 0808, Banco de España.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Moutsopoulos, Michael & Pelagidis, Theodore, 2021. "Labor Taxation: Insights From The World Economic Forum Survey," MPRA Paper 110823, University Library of Munich, Germany.
    2. Jeronim Capaldo, 2014. "The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability," GDAE Working Papers 14-03, GDAE, Tufts University.
    3. Tangian, Andranik S., 2017. "Declining labor-labor exchange rates as a cause of inequality growth," Working Paper Series in Economics 104, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    4. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    5. Ignacio Hernando & Pedro del Río & Irene Pablos, 2015. "Adjustment and growth prospects in the developed economies," Economic Bulletin, Banco de España, issue MAR, pages 29-44, March.
    6. repec:bde:journl:v:03:y:2015:p:02 is not listed on IDEAS

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    More about this item

    Keywords

    biased technological progress; business cycle; international trade; labor income share; skilled labor;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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