The Fall of the Labor Income Share in Advanced Economies

Abstract

The share of labor income in GDP 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.

JEL classification: E25 ; F62 ; J31 ; O33