Abstract
Documenting an average drop of the labor share of eight percentage points for eight European countries and the US between 1980 and 2007, we analyze the role of technological progress and labor market frictions. According to our results, while capital-labor substitution in general was not crucial, Information Communication Technology (ICT) explains more than half of the decline in the labor share, given an estimated elasticity of substitution with the labor input of 1.18. Considering hiring costs slightly dampens the estimated substitution effect at aggregate level. Additionally, by modeling the substitution between ICT and labor with a set of key labor market variables, we find it to be linked to both the share of routine occupations (positively) and the share of high-skill workers (negatively) with a similar strength.
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