Measuring the Labor Income Share of Developing Countries: Lessons From Social Accounting Matrices

This paper addresses the challenges of measuring the labor income share of developing countries. The poor availability and reliability of national account data as well as the fact that self‐employed—whose labor income is hard to capture—account for a major share of the workforce and often work in the informal sector render its computation difficult. Consequently, measuring the labor share requires assumptions. I consult social accounting matrices in addition to national account data to gain information on the production structure and self‐employed incomes in developing countries. The final data set covers about 90 developing countries from 1990 to 2011. The data suggest that the finding of declining labor shares of previous studies also applies to the sample of low and middle‐income countries. Furthermore, I find the labor share in developing countries to be about one‐half in size and hence less than the standard “two‐thirds” in economic literature.