Labor Income Share Research Articles

Aging and labor share of income in Korea

AbstractA growing body of evidence points to a decline in the labor share of income. A sizable empirical literature delves into the relationship between technological progress, globalization, and market concentration and labor's declining income share, which can exacerbate income inequality. Population aging has often been put forth as a factor that worsens income inequality. However, few studies have empirically examined the nexus between aging and the labor share, a potentially significant driver of inequality. In this study, we use industry‐level data to investigate the nexus in Korea, a rapidly aging country where inequality has emerged as a big social and economic issue. We find a positive and significant association between aging and labor share. Hence, at least in Korea, we do not find that aging exacerbates income inequality by reducing labor's income share. In addition, our evidence suggests that labor share has a negative link with both information and communication technology capital and robots.

Do more get more: Monopoly appropriation of labor income in manufacturing companies

In recent years, the overtime culture has generally emerged in Chinese enterprises (CEs), the length of workers’ working hours has been lengthened, and their intensity has increased. Still, the labor income share has declined, which deserves in-depth analysis. This paper introduces a relative labor intensity indicator to estimate the trend of the labor income share based on the general factor-enhanced CES production function in China. The econometric model is then introduced to analyze in-depth the influencing factors leading to this trend using relevant data from 2001 to 2020. If the elasticity of substitution is less than 1 and capital and labor are complementary, then the labor income share tends to decrease. This is because the relative labor intensity tends to increase while the growth rate of the capital-labor ratio tends to decrease. The empirical results also show that the decrease in labor income share and labor compensation is related to monopoly and the amount of capital input. If the amount of capital input is higher and the degree of monopoly is higher, then the labor income is lower, and the share of labor income is lower. Monopolies and capital intercept most of the value created because of the increased labor intensity, and laborers receive only a small profit.

Global natural projections.

The paper contributes to the debate on natural interest rates and potential growth rates. We build a model-based projection of the world’s most significant economies/areas to improve understanding of their change over the long run and the factors behind their decline. We use a general equilibrium overlapping generation model to understand the simultaneous role of demographics, technology, and globalization. The novelty of the model lies in the way it constructs a human capital index based on UN population projections and an estimated increasing returns production function for major economies worldwide. We find that the decline in interest rates is well explained through labor market dynamics and the increasing obsolescence of capital goods. We also find that a reduced share of labor income has caused movement in the opposite direction, leading to an increase in natural interest rates, which runs counter to the empirical evidence. Moreover, the dynamics of economic integration predict an endogenous adjustment of global imbalances over the long run, with an increasing weight of the Chinese economy and, consequently, a phase of weakness in United States growth between 2030 and 2040. The model is also used to perform shock scenario analysis. We find that demographic decline can adversely affect the growth dynamics for European countries, while a change in the dynamics of globalization can have serious consequences, especially for the United States, with significant benefits for European countries and China.

The fall of the labor income share: The role of technological change and hiring frictions

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.

Digital Transformation of Enterprises and Share of Laebor Income: evidence from China

Promoting the digital transformation of enterprises and increasing the proportion of labor remuneration in the initial distribution are necessary guarantees for constructing a modern economic system and realizing the essential requirements of socialism. Based on the data of A-share listed firms, the essay explores the impact of digital transformation on labor income share. It is shown that the digital transformation of enterprises significantly increases the share of labor income, which is still valid after dealing with endogenous problems and a series of robustness tests. The research also finds that the digital transformation of enterprises increases the proportion of high-skilled talents, and then increases the wage rate and labor productivity. Its positive effect on the wage rate exceeds the positive impact on labor productivity. Additionally, the essay points out that the impact on labor income share is more significant in non-state-owned firms, large-scale firms, firms located in the eastern and western regions, and firms belonging to high-tech industries. Finally, from the perspective of the specific content of the digital transformation of enterprises, the promotion effect of the application of digital technique on labour income share is the most evident. The findings help assess the impact of digital transformation on the share of labor income and provide policy implications for the two-way empowerment of the digital economy and common prosperity.

Sectoral wage share and its decomposition in China

ABSTRACT This paper investigates sectoral contributions to the trend of national wage share, or the labor income share, during 2000–2014 in China. I apply the logarithmic mean Divisia index (LMDI) decomposition, the method widely used in energy studies, to decompose the trend of the wage share. At a sectoral level, with rapid structural transformation, structural change negatively impacted the wage share through the between-sector effect – the structural and price effects – mainly from agriculture. This result confirms Arthur Lewis’s hypothesis that structural transformation has a negative contribution to the wage share. At a national level, when the wage share declined before 2008, the between-sector effect was as significant as the within-sector effect – the wage and productivity effects. After 2008, the within-sector effect directed the increasing wage share trend. This implies that although structural transformation matters to the wage share in a large developing country like China, a wage-productivity nexus has been more influential and determined the increasing trend of the wage share since 2008.

Trade and factor intensity, and the transmission of the global shock to labor: A panel analysis of the fall of the labor income share in the Mexican manufacturing sector

The paper studies the fall of the labor income share in Mexico, contrasting the role of trade and factor intensity as transmission channels of the China shock of 2001. It finds that, while the skill, technological and —more surprisingly— trade intensity of Mexican industries were largely irrelevant, capital intensity played a key role: in particular, the higher was the industries’ initial capital intensity, the more vulnerable they were to the transmission of the global shock to labor. The finding is consistent with the proposition that industrial integration, concentrated in industries that are capital-intensive from the perspective of developing countries, facilitated the transmission of the shock. Results come from the estimation of panel equations for the annual change in the labor share across Mexican manufacturing industries, where transmission is measured by the correlation between changes in the United States and Mexican industry labor shares.

Environmental regulation, abatement strategy, and labor income share

Firms need to adopt abatement strategies and change their modes of production and resource allocation under the strict environmental policy, which affects the labor income share. Based on the firm-level data of China’s Industrial Enterprise Database and Pollution Emission Database from 1998 to 2013, this study uses the difference-in-differences framework to test the effects and mechanisms of environmental policy on labor income share with different abatement strategies. We find that the Two Control Zone policy coupled with Environmental Performance Assessment policy (EPA-TCZ policies) in China, significantly increases the labor income share by 2.6% and reduces sulfur dioxide (SO2) emissions. Mechanism analyses further find that firms primarily adopt abatement strategies of source control and end-of-pipe treatments to cope with environmental regulation, and labor income share is enhanced through the factor-substitute effect and the cost effect. As the result of labor income share, low-skilled firms and state-owned firms are more sensitive to environmental regulation. The results from this study provide an empirical basis for the formulation and evaluation of environmental policies in developing countries.

Democracy, Labor’s Share of Income, and Labor Supply: A Time-Series Cross-Sectional Analysis

This paper examines democracy’s impact on the labor share of income: the share of Gross Domestic Product (GDP) dedicated to wages, salaries, and benefits. I hypothesize democratic regimes afford labor the opportunity to increase its share of national income. While previous empirical work finds cross-sectional evidence for the hypothesis, this paper employs a time-series cross-sectional analysis using data for 119 countries between 1950 and 2017, indicating the labor share of income is higher in democratic countries. The estimates are robust to different specifications of the statistical model. This paper also examines a potential causal mechanism that links democracy to a higher labor share through the supply of labor (the average number of hours worked in the economy). The relationship between democracy and the supply of labor lends additional evidence to my hypothesis. In a world characterized by diverging democracy, the results imply the path countries choose between democracy and dictatorship matters.

Declining Labour Income Share and Personal Income Inequality in Advanced Countries

Growing income inequality currently poses a significant threat to sustainable development. Hence, it is important to monitor this phenomenon, in particular to identify determinants favouring the deepening of income inequality. One of the significant determinants in this respect is the declining labour income share in national income. The theoretical justification of the presumption of a negative relationship between the share of labour in the national income and income inequality has strong logical foundations. Existing studies indicate, however, some ambiguities as to the strength of this relationship and the existence of various factors cancelling this relationship. The following study attempts to verify the existence, direction, and intensity of the relationship between the labour income share and income inequality in a relatively homogeneous group of 33 OECD countries studied in 1990–2018. The main hypothesis verified in the study is the assumption that there is a negative relationship between labour share and income inequality. Our results show that the relationship between the share of employees’ and self-employed workers’ income in the national income and income inequality at the general level (i.e., in a group study of 33 countries in total) exists, is negative and statistically significant, but has a very small share in explaining the behaviour of income inequality.

GENDER PROFILE OF INCOME AND CONSUMPTION: EVIDENCE FROM THE NATIONAL TRANSFER ACCOUNTS OF MOLDOVA

The use of the National Transfer Accounts (NTA) methodology has opened up the possibility of examining gender differences in income and consumption throughout the life cycle. This article presents the results of the study of the gender profile of income and consumption based on the NTA of Moldova for 2019. Moldova is characterized by a low level of employment of the population, low incomes and a high involvement of the population in international labor migration. Women's labor incomes are lower than men's throughout the life cycle, and the life cycle surplus is entirely formed by men, who are net donors to cover the life cycle deficit of other age groups during the working period. More than two-thirds of the economic life cycle deficit is held by women, and the gender gap in economic dependence was 22.7% - an additional share of the total labor income needed to finance women's economic dependence compared to the total labor income needed to finance men's economic dependence. Differences in the age profile of working income are due to the fact that women enter the labor market a little later than men, due to much higher enrollment rates in higher education institutions, as well as due to low participation in the labor market during the period associated with the birth and upbringing of children. The economic dependence of women is a reflection of the “gender contract” characteristic of Moldova, according to which a man and a woman participate in the labor market, but the woman still has most of the household chores.” It can be assumed that the problem of underestimation of income by the population in the household survey could cause an underestimation of the age profile of labor income, which, in turn, influenced the estimation of the size of the economic life cycle deficit.

Capital Mobility vs. Labor Mobility:Theory and Implications

A random search-based model is proposed to study the impact of the relative mobility of capital with respect to labor on income inequality and financial globalization for the first time. Our simulation results indicate that capital is less mobile than labor domestically. Our simulation results further suggest the duality of capital mobility in financial globalization, in which more mobile capital may not always promote financial globalization. Lastly, our simulation results show that the share of labor income in the gross proceeds is negatively related to the relative mobility of capital, the separating rate between capital and labor, and the bargaining power of capital, which may shed light on income inequality in the U.S.

The Decline of the Labor Share: New Empirical Evidence

We use time series techniques to estimate the importance of four main explanations for the decline of the US labor income share: rising firm markups, falling bargaining power of workers, higher investment-specific technology growth, and more automated production processes. Identification is achieved with restrictions derived from a stylized model of structural change. Our results point to automation as the main driver of the labor share, although rising markups have played an important role in the last 20 years. We also find evidence of capital-labor complementarity, suggesting that capital deepening may have raised the labor share. (JEL D21, D43, E25, J51, L23, O33, O41)

Linkages and changing factor use in Indian economy: Implications of emerging trade pattern

Globally, a greater component of trade in intermediates—parts and components—is a characteristic of the changing paradigm of international trade. Consequently, alongside the increasing trade openness of the Indian economy, the access to international factors of production has increased through their embodied use during the production of intermediates that are imported. Thus, the emerging trade pattern has the potential to impact the use of factors of production of domestic origin through linkages in the internal economy. This paper makes an assessment of the changing intensity of use of the two factors of production, viz., labor (L) and capital (K), in the economy. The analysis aims to provide an estimate of the impact of import utilization on the use of labor and capital. In the backdrop of a generally declining employment intensity, the employment foregone effect from the use of imported intermediate inputs is observed to have worsened over the period of study. Ironically, this has contributed to lower domestic employment, even in the traditionally labor-intensive sectors. The employment effect of import utilizations is also reflected in the declining share of labor income. The use of capital embodied in imported intermediates has contributed to increasing the capital intensity of the economy despite the low domestic capital investment. This underscores a greater dependency on capital-intensive imports. While import reliance has increased for both employment and the capital goods through their embodied use in the imported inputs, the dependency on imported capital has been stronger. A higher relative use of capital (K-to-L) indicates that the production method is relatively capital-intensive, thus requiring more capital goods and investment. The findings resolve the puzzle of India’s increasing relative use of capital alongside a slowdown of domestic investments in productive capital. The deficit on domestic investment has been compensated through import utilizations of capital goods.

Financial Development and Female Labor Income Share: Evidence from Global Data

While there has been sizable literature on the effect of financial development on growth, inequality, and poverty, there are fewer studies on its impact on female labor force participation or women’s wellbeing. Using a novel dataset, this paper investigates the association between the dimensions of financial development and female labor income share for 156 countries for the period of 1991-2019 to contribute to the literature on the role of financial development in improving women’s wellbeing. The findings show that financial development is positively associated with women’s income in high-income countries but not in low-income countries. The main implication of the study is that financial development in poor countries is not sufficiently inclusive enough to create economic opportunities for women.

Automation, Market Concentration, and the Labor Share

Since the early 2000s, a rising share of production has been concentrated in a small number of superstar firms. We argue that the rise of automation technologies and the cross-sectional variation of robot use rates have contributed to the increases in industrial concentration. Motivated by empirical evidence, we build a general equilibrium model with heterogeneous firms, endogenous automation decisions, and variable markups. Firms choose between two types of technologies, one uses workers only and the other uses both workers and robots subject to an idiosyncratic fixed cost of robot operation. Larger firms are more profitable and are thus more likely to choose the automation technology. A decline in the cost of robot adoption increases the relative automation usage by large firms, raising their market share of sales. However, the employment share of large firms does not increase as much as the sales share because the expansion of large firms relies more on robots than on workers. Our calibrated model predicts a cross-sectional distribution of automation usage in line with firm-level data. The model also implies that a decline in automation costs reduces the labor income share and raises the average markup, both driven by between-firm reallocation, consistent with empirical evidence.

Who profits from windfalls in oil tax revenue? Inequality, protests, and the role of corruption

We investigate the relationship between oil windfalls and income inequality using the subnational data of one of the resource-richest and highly unequal countries in the world – Russia. While previous literature produced contradictory findings due to the use of an aggregate measure of oil rents mainly in cross-national settings, we focus exclusively on oil rents that accrue to the subnational governments across one country. Our estimation strategy takes advantage of the two specific features of Russian oil taxation: 1) the policy change when sharing oil extraction taxes with local budgets was discontinued; and 2) the oil tax formula being tied directly to the international oil prices making oil price shocks an exogenous measure of change in oil rents. When we look at the period with oil tax revenues shared with the regional governments, we find that oil windfalls had increased income inequality and benefited the wealthiest quintile of the population in regions with more intense rent-seeking. Further, positive oil price shocks combined with greater rent-seeking reduced the share of labor income but increased the income share from unidentified sources traditionally associated with corruption. These effects of oil windfalls disappeared after the Russian government discontinued oil tax revenue sharing with regional governments. Finally, we examine some political implications of rising inequality due to the appropriation of oil windfalls. We find a positive effect of rising inequality on the frequency of protests associated with grievances among the poor and disadvantaged social groups; this effect, however, exists only in relatively democratic regions.

Labor Share Dynamics and Factor Complementarity

Abstract This paper investigates the mechanism behind the cyclical movements in the labor income share. We build a dynamic stochastic general equilibrium model with search and matching frictions to examine the counter-cyclicality and overshooting of the labor income share, following a technology innovation. This model features (i) a time-varying output elasticity of labor, generated from the capital–labor complementarity under a constant-elasticity-of-substitution production function, and (ii) an endogenous markup variation, generated from wage/price rigidity. Through the output elasticity and markup channels, the capital–labor complementarity interacts with wage rigidity, which allows us to produce a satisfactory matching of the amplitude of the labor share overshooting observed in the data. The amplitude of the labor share overshooting is more significant when wages (prices) are more (less) sticky, and when the government’s interest rate rule is more (less) responsive to the deviation in the inflation (output) target.

Sectoral heterogeneity, industrial structure transformation, and changes in total labor income share

• Build a multi-sector dynamic general equilibrium model to characterize the impact of sectoral heterogeneity on the industrial structure transformation and labor income shares, and then perform it with numerical simulations result. • Find that the changing direction of total labor income share is same as the labor share of labor-intensive industries. • Explain the “U-shape” trend of China's total labor income share changes. • Help to further understand the economic connotation of the time-varying elasticity production function model and the ongoing structural transformation of China's economy. In recent years, China's labor income share has undergone substantial changes and the evolution of income distribution is inseparable from the process of industrial structural transformation. From the perspective of sectoral heterogeneity, this study develops Ngai and Pissarides’ (2007) model, constructing a multisector dynamic general equilibrium model. We propose that technological progress or capital deepening will promote the flow of production factors among sectors, with the direction dependent on the substitution elasticity between products, sectoral differences in the rate of technological progress, factor output elasticity, and elasticity of factor substitution. This process of factor flow also causes changes in total labor income share, and the direction parallels the labor share of labor-intensive industries. Combining the development data of China's three major industries during different periods, the results demonstrate that in the industrial period, labor flows from the agricultural sector to the industrial sector and the total labor income share decreases; in the postindustrial period, labor flows from the industrial sector to the service sector and the total labor income share increases. The contribution of this study is in presenting a comprehensive and systematic examination of the impact of sectoral heterogeneity on industrial structure transformation and labor income share, which explains the U-shaped trend of China's overall total labor income share and also helps to further understand the structural transformation of the Chinese economy.

Imperfect Competition, Real Estate Prices and New Stylized Facts

In this paper, we develop an overlapping generation model with imperfect competition and land to provide a theoretical foundation for some empirical observations made since the end of the 1970s. The problem is that these new “stylized facts” do not coincide with Kaldor’s stylized facts and unfortunately the standard growth models are not able to explain these new facts. By using our model, we are able to theoretically derive these new facts and to provide a theoretical foundation for them. In particular, increasing market concentration leads to a decline in the labor income share, to a decline in the capital income share, to a decline in the natural interest rate, to an increasing wealth to income ratio, and to an over-proportional increase in land prices in developed countries. The model developed for analysis has close similarity with the standard neoclassical overlapping generation model with endogenous growth and land. The main difference between the standard neoclassical and the model in this paper is the market structure. Instead of assuming perfectly competitive markets, we assume an oligopolistic market structure. This leads to the occurrence of pure profits for firms and, accordingly, the input factors are no longer paid their marginal products.