The decline in the wage share: falling bargaining power of labour or technological progress? Industry-level evidence from the OECD

Abstract

Abstract We investigate whether the downward trend in the wage share is driven by technological change or a decline in labour’s bargaining power. We present an econometric analysis using industry-level data for 14 Organisation for Economic Co-operation and Development (OECD) countries for the 1970–2014 period and test whether the determinants of the wage share differ between manufacturing and service industries, between workers of different skill groups and across countries with different bargaining regimes. Our findings suggest that the wage share declined due to a fall in labour’s bargaining power driven by offshoring to developing countries and changes in labour market institutions such as union density, social government expenditure and minimum wages. In contrast, the effect of technological change is not robust. While we find evidence for a negative effect on medium-skilled workers, our results cast doubt on the hypothesis of skill-biased technological change.