Essays on the determinants of labor's value added share

Abstract

This dissertation consists of four essays on the functional distribution of income and contributes to the body of research on labor markets and macroeconomics. The first essay reviews the literature on the income share of labor. The second essay analyzes empirically the impact of investments into information and communication technology (ICT) on the relative compensation of high-, medium-, and low-skilled workers. The results imply that, although ICT investments influence the relative demand of workers by skill, this impact is not persistent over time and across countries. Nevertheless, individual industries are identified in which ICT investments increase the relative compensation of high-skilled workers and industries in which ICT investments polarize compensation at the bottom of the skill distribution. The third essay investigates the empirical influences on the labor share in Western Europe. The results show a large and persistent negative impact of economic integration on the labor share in the medium-run for an industry-level measurement. Stronger labor market institutions increase the labor share. Furthermore, the results suggest a common negative impact of ICT and economic globalization on labor share, while ICT itself seems complementary to labor in production. The fourth essay assesses empirically through which channel ICT decreases the labor share. The model of Bental and Demougin (2010), which argues that ICT reduces the labor share by improving monitoring technology and therefore lowering the workers rent at every level of output, is calibrated and simulated using data from nine OECD countries. The results show that the model can generate the observable trends in the labor shares as well as real wages in efficiency units and labor in efficiency units over capital. Furthermore, an analysis of micro data from the German Socio-Economic Panel indicates an overall average increase of perceived monitoring of workers between 1985 and 2001