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The Micro-Level Dynamics of Declining Labour Share: Lessons from the Finnish Great Leap

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  • Kyyrä, Tomi
  • Maliranta, Mika

Abstract

In contrast with the experiences of the UK and the US, the distribution of labour and capital income has changed sharply in favour of capital in most Continental European and Nordic countries during the past two decades. We examine forces behind the evolution of the aggregate labour share by analysing the dynamics of labour shares within and between firms/plants in the Finnish business sector. Using a decomposition method applied in labour economics and productivity analysis, we show that much of the decline in the aggregate labour share stems from the reallocation of resources between firms and plants, while labour shares at the firm/plant level have remained relatively stable.

Suggested Citation

  • Kyyrä, Tomi & Maliranta, Mika, 2006. "The Micro-Level Dynamics of Declining Labour Share: Lessons from the Finnish Great Leap," Discussion Papers 406, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:406
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    Cited by:

    1. Reshef, Ariell & Santoni, Gianluca, 2023. "Are your labor shares set in Beijing? The view through the lens of global value chains," European Economic Review, Elsevier, vol. 155(C).
    2. Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2009. "Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland," Working Papers 0972, Tampere University, Faculty of Management and Business, Economics.
    3. Kyoji Fukao & Koji Ito & Cristiano Perugini, 2019. "A Microeconomic Analysis of the Declining Labor Share in Japan," ADB Institute Series on Development Economics, in: Gary Fields & Saumik Paul (ed.), Labor Income Share in Asia, chapter 0, pages 247-267, Springer.
    4. Fornaro, Paolo & Luomaranta, Henri, 2015. "Small Versus Large Firms Employment Patterns in Finland: a Comparison," MPRA Paper 66979, University Library of Munich, Germany.
    5. Ivan D. Trofimov, 2019. "Stability of Labour Shares: Evidence from OECD Economies," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 17(1), pages 57-89.
    6. Growiec, Jakub & McAdam, Peter & Mućk, Jakub, 2018. "Endogenous labor share cycles: Theory and evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 74-93.
    7. Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2010. "Micro and Macro Level Wage Rigidity: Lessons from Finland," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 27-42, Spring.
    8. Sullström, Risto & Riihelä, Marja & Suoniemi, Ilpo, 2008. "Tax Progressivity and Recent Evolution of the Finnish Income Inequality," Discussion Papers 460, VATT Institute for Economic Research.
    9. Kosonen, Tuomas, 2007. "The Increased Revenue from Finnish Corporate Income Tax in the 1990s," Discussion Papers 421, VATT Institute for Economic Research.
    10. Jakub Growiec, 2009. "Determinants of the Labor Share: Evidence from a Panel of Firms," NBP Working Papers 69, Narodowy Bank Polski.
    11. Jalava, Jukka & Aulin-Ahmavaara, Pirkko & Alanen, Aku, 2007. "Intangible Capital in the Finnish Business Sector 1975-2005," Discussion Papers 1103, The Research Institute of the Finnish Economy.
    12. Corbellini, Aldo & Magnani, Marco & Morelli, Gianluca, 2021. "Labor market analysis through transformations and robust multivariate models," Socio-Economic Planning Sciences, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Factor income shares; wage policy; decomposition; productivity; Income distribution; Tulonjako; Labour market; Työmarkkinat; Labor market and policies promoting economic growth; Työmarkkinat ja kasvua tukeva politiikka;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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