Labor Share Research Articles

Distributive cycles in the export-led growth model: On the macroeconomics of a pro-labor shift in Central and Eastern Europe

Abstract This article aims to reassess a stylized fact, increasingly well-established in the Comparative Political Economy scholarship, that Central and Eastern Europe (CEE) economies exhibit characteristics of the so-called export-led growth (ELG) model. We can confirm the ‘ELG in CEE’ hypothesis by developing and testing a Goodwinian distributive cycles’ macroeconomic model focused on the productivity–employment–wage share nexus. Moreover, our approach allows us to shed light on the apparent contradiction between ELG characteristics and the dynamic wage and employment growth experienced in the region after the global financial crisis (GFC) by exploring the possibility of a productivity-induced shift within the ELG model. We conclude that CEE countries experienced technical upgrading, which allows them to maintain export competitiveness despite a visible pro-labor shift in the income distribution.

Digital Economy, Employment Structure and Labor Share

The COVID-19 pandemic significantly disrupted employment, making it challenging to increase the labor share. However, the recent expansion of the digital economy has revitalized economic growth and markedly improved productivity. This raises a critical question: can the growth of the digital economy not only boost labor productivity but also increase labor share and reduce income inequality? This paper explores the impact of digital economic development on labor share, examining the underlying mechanisms at play. Our findings suggest that the digital economy has the potential to reshape employment structures, leading to an increase in the labor share. However, the extent of this impact varies across different industries. Furthermore, from an industrial chain perspective, the digital economy has created technology spillover effects that benefit upstream and downstream sectors. In light of these findings, it is crucial to continue fostering the growth of the digital economy to address potential negative impacts on the labor share in the future.

A Kaleckian growth model of secular stagnation with induced innovation

AbstractThis paper works out a demand‐led growth model that draws on the Kaleckian‐Steindlian tradition to examine the relationships between income distribution, capacity utilization, and capital accumulation; on Goodwin‐type growth cycle models to investigate the dynamic interaction between labour market and distributive conflict; and on the induced innovation literature to link labour productivity growth to income distribution. We find that: (i) an increase in the labour share driven by stronger workers' bargaining power leads to faster capital accumulation and labour productivity growth in the long run, irrespective of the short‐run growth regime of the economy; (ii) a positive institutional shock to the labour share can either increase or decrease the long‐run employment rate, depending on the short‐run growth regime; and (iii) an increase in the labour share driven by negative technology shocks leads to faster capital accumulation and labour productivity growth in the long run only if the economy exhibits a short‐run wage‐led regime. This model then unifies classical/neo‐Goodwinian and Kaleckian views on the long‐run relationships between the labour share, employment, and growth within a more general Kaleckian framework of a labour‐constrained economy with induced technical change.

The decline of the wage share in value-added: what have we learned from North African firms?

The decline of the wage share in value-added: what have we learned from North African firms?

Rule of law, economic structure and development

AbstractIf rule of law encourages relationship‐specific investments, then industries that use intermediates which require relationship‐specific investments should have a disproportionately low share of output or labour in countries where rule of law is weak. We find robust support for this prediction using data on industry composition for 189 countries. Using a standard preference framework to construct model‐implied income values from the estimated coefficients, we find that the interaction between relationship specificity and rule of law may be an economically significant determinant of aggregate outcomes through its influence on productivity and economic structure.

A dynamically consistent discretization method for the Goodwin model with nonlinear Phillips curve. Comparing qualitative and quantitative dynamics

AbstractThe Goodwin model is a widely used economic growth model able to explain endogenous fluctuations in employment rate and wage share; in its initial version, the standard Phillips curve is used. In the present work, we suggest a revised Phillips curve that takes into account how the wage share influences the rate of changes of the wage itself thus obtaining a continuous-time modified Goodwin model. Since applying models to real data often requires working in a discrete-time setup, we then move from the continuous-time to the discrete-time version of the proposed model, by using a general polynomial discretization method in backward and forward-looking (hybrid discretization). By comparing the continuous-time system to its discrete-time counterpart we prove that fixed points and local dynamics do not change, as long as the time step is not too high. Moreover, numerical simulations employing Dynamic Time Warping, cross-correlation, and semblance analysis consistently affirm that enhancing the similarity of quantitative dynamics is achieved by reducing the time step.

EU-induced financialisation and its impact on the Greek wage share, 1999–2021

This paper examines the determinants of the income share of wage earners in the non-financial, private sectors of Greece since its introduction to the Eurozone in 1999. The main outcome of the integration of Greece into the Eurozone has been the financialisation of its economy, which has been particularly influential for households since it led to the rapid rise of household indebtedness. Building on recent research which shows that financialisation shape wage bargaining outcomes, we use quarterly data from the Eurostat and demonstrate that the relative size of the FIRE sectors and the increase in household debt have been negative drivers of the wage share in Greece over the last 22 years. Our findings also suggest that the employment-tied social benefits system and tertiary education provision have also been important determinants of workers’ income share.

The Fertility Transition in Sub-Saharan Africa: The Role of Structural Change.

Despite recent economic growth and reductions in child mortality in many African countries, the region has experienced a slow fertility transition. In this study, we explore whether the slow structural economic change on the continent can explain this discrepancy. We construct a unique panel dataset combining Demographic and Health Surveys and nighttime light intensity data (an indicator of industrialization) from 57 countries at the subnational region level over three decades to analyze the drivers of fertility transitions across low- and middle-income countries. Our results confirm that household wealth, reduced child mortality, and female primary education are crucial for fertility declines. However, our analysis also highlights the importance of indicators of structural economic change, including the share of labor in nonagricultural occupations, industrialization, the share of women with higher education, and the formalization of the economy. Our simulations suggest that if high-fertility countries in sub-Saharan Africa underwent structural economic transformations comparable to those of other low- and middle-income countries with low fertility rates, their fertility levels could fall by 1 to 1.6 children.

Labor share decline across US manufacturing sectors: 1979–2019

ABSTRACT This paper studies the sectoral contributions to aggregate manufacturing labour share decline in the US between 1979 and 2019. Using the Log Mean Divisia index (LMDI) decomposition, the decline in the manufacturing sector’s labour share is decomposed into contributions from real wage growth, labour productivity growth, changes in employment shares, and relative prices arising from the constituent sectors across three business cycles. The primary findings of the paper suggest that the downward decoupling of real wages from labour productivity is the primary contributor to the labour share decline in manufacturing. Moreover, low labour share sectors (especially chemical products, food and beverage and tobacco products, and petroleum and coal products) have experienced an increase in their employment shares, contributing negatively to aggregate manufacturing labour share. This paper advances insights related to sectoral heterogeneity and possible mechanisms behind the decline in aggregate manufacturing labour share.

Тенденции распределения доходов между трудом и капиталом в странах с низкой долей труда в ВВП

The work is devoted to obtaining quantitative estimates of trends in the distribution of income between labor and capital in countries with a low share of labor in GDP. UN data was used for a set of European countries, post-Soviet countries, Israel, Canada, the USA and Turkey. The lowest labor share levels were observed in Ireland, Kyrgyzstan, Romania and Turkey. To assess trends in the share of labor in GDP on the rate of economic growth, linear econometric models of changes in the share of labor compensation in GDP by year in the period from 2012 to 2021 were built. Hungary, Ireland, Kazakhstan, Kyrgyzstan, Uzbekistan and Ukraine have seen a decline in the share of labor in GDP. In Uzbekistan, this trend is weakly expressed. Germany, Greece, Iceland, Luxembourg, the Czech Republic, Switzerland and Estonia have seen an increase in the labor share of GDP. In Germany and Switzerland this trend is weakly expressed. An increase in the share of labor in GDP is observed in countries such as Azerbaijan, Belarus, Bulgaria, Georgia, Israel, Cyprus, Latvia, Lithuania, Malta, Norway, Poland, the Russian Federation, Romania, Serbia, Slovakia, Turkmenistan and Turkey. Moreover, this trend is weakly expressed in Belarus and Turkey. There are no significant trends in the redistribution of income between labor and capital in countries such as Albania, Malta, North Macedonia, Tajikistan and Montenegro. Trends in the redistribution of income between labor and capital can be determined by institutional conditions in the country’s economy.

Optimal taxes and basic income during an episode of automation: a worker’s perspective

Abstract Motivated by distributional concerns raised by recent breakthroughs in AI and robotics, we ask how workers would prefer to manage an episode of automation in a task-based model, which distinguishes between automation and traditional technical progress. We show that under majority voting with the option to implement a “partial” UBI (as transfers to workers) it is optimal to tax capital at a higher rate than labor in the long run to fund the partial UBI. We show that, unlike traditional technical progress, automation always lowers the labor share in the long run, justifying distributional concerns. A quantitative analysis of an episode of automation for the US economy shows that it is optimal from the workers’ perspective to lower capital taxes and transfers over the transition. Nevertheless, this policy increases worker welfare by only 0.7% in consumption-equivalent terms, compared with a 21.6% welfare gain to entrepreneurs, because the welfare gains to workers from lower capital taxes are second-order, while the gains to entrepreneurs are first-order.

The Distributive Impact of Unconventional Monetary Policies: Old and New

ABSTRACT In this paper we analyze the impact of less conventional monetary policy tools on the personal and functional distribution of income. We focus on the issuance of central bank digital currency (CBDC) in a comparative perspective, using a stock-flow consistent model of the eurozone economy. We consider two kinds of policies: helicopter money policies such as Quantitative Easing and the issuance of a CBDC; and scenarios not based on balance sheet expansions, such as an interest rate policy following the Pasinetti Rule, or a sterilized issuance of CBDC. Monetary policies using CBDCs tend to increase the wage share at the expense of financial rents. The targeted issuance of CBDCs to firms might produce an increase in GDP, corporate profits, and the wage share. The Pasinetti Rule reduces personal income inequality the most, but if applied mechanically, its impact on growth is also the least desirable.

Demographic change, secular stagnation, and inequality: automation as a blessing?

Abstract We study whether the increased adoption of available automation technologies allows economies to avoid the negative effect of aging on per capita output. We develop a quantitative theory in which firms choose to which extent they automate in response to a declining workforce and rising old-age dependency. An important element in our model is the integration of two capital types: automation capital that acts as a substitute to human labor, and traditional capital that is a complement to labor. Empirically, our model's predictions largely match data regarding automation (robotization) density across OECD countries. Simulating the model, we find that aging-induced automation only partially compensates the negative growth effect of aging in the absence of technical progress in automation technology. One reason is that automated tasks are no perfect substitutes for non-automated tasks. A second reason is that automation raises the interest rate and thus inhibits positive behavioral reactions to aging (later retirement and investment in human capital). Moreover, increased automation generates a falling net labor share of income and rising welfare inequality. We evaluate alternative policy responses to cope with this inequality.

A review of the intersection between climate change, agriculture, health, and nutrition in Africa: costs and programmatic options

BackgroundClimate change adversely affects Africa’s agriculture which would worsen the widespread food insecurity and nutritional deficiencies. Vulnerable populations, especially female farmers, women, and children are disproportionately affected.MethodsThe paper synthesizes available peer-reviewed and grey literature on the intersections of climate change, food insecurity, agriculture, gender disparities, health, child nutrition, and micronutrient deficiencies in Africa. It explores the economic ramifications of these factors, particularly their impact on public health and economic stability. The work aggregates insights into the current and future challenges of agricultural sustainability and the expected human capital development and economic costs of climate variations.ResultsThe prevalence of hunger and undernourishment in Africa is notably higher compared to other regions. Climate change directly threatens agriculture, with anticipated reductions in crop and livestock yields, compounded by the negative impact of greenhouse emissions on the nutritional quality of staple foods. Female farmers contribute notably to agriculture, but their labor share is less dominant than previously assumed. Exposure to high temperatures, especially for outdoor workers and pregnant women, presents significant health risks, further impacting agricultural and economic output. These interdependencies are presented in a framework along with suggested interventions that could be contextualized to address the climate drivers and interconnectivity across agriculture, health, and livelihoods.ConclusionThe interdependence between food, agriculture, health, nutrition, and human productivity, all of which are exacerbated by the impacts of climate change in Africa, form a complex challenge with profound health and economic implications. A multifaceted strategy is needed, encompassing climate-resilient farming practices, gender-sensitive interventions, health-focused measures like micronutrient supplementation, and comprehensive economic policies.

Commodity prices and production networks in small open economies

We study the role of domestic production networks in the transmission of commodity price fluctuations in small open economies. First, we present a tractable model of a small open economy's production network to explain sectoral propagation patterns. We demonstrate that the domestic production network is crucial in shaping the propagation of commodity prices. Using a panel of 31 sectors across 9 small open economies, we empirically confirm the model's predictions. Next, we construct a dynamic model of a small open economy featuring a production network to study the macroeconomic importance of the network structure in shaping both aggregate and sectoral responses to commodity price shocks. We show that: (i) the network-adjusted labor share of the commodity sector, rather than the sector's size, is key to understanding the real wage's response to commodity price fluctuations; and (ii) non-unitary elasticities of substitution in production are crucial for understanding the cross-sectional implications of these fluctuations.

Broadband infrastructure expansion and labour income share: micro-evidence from Chinese industrial enterprises

ABSTRACT This study investigates the impact of broadband infrastructure on the labour share. We exploit the implementation of the ‘Broadband China Strategy’ (BCS) as an exogenous policy shock and use the staggered difference-in-differences framework with a panel dataset of Chinese industrial enterprises spanning 2011–2015. We find that the BCS leads to a significant reduction in the labour income share of firms in pilot cities compared with those in non-pilot cities, which remains robust after conducting various robustness checks. Rising market power and deepening capital are the two mechanisms underlying this effect. While our further analysis underscores significantly positive impact of broadband infrastructure on firm productivity and skilled labour structure, they do not highlight an elevated skill premium tied to broadband infrastructure. Heterogeneity analysis reveals that the effects are more pronounced among larger firms, industries with higher concentrations, and cities with higher innovation capacities. Overall, this study augments the existing literature on the firm-level determinants of labour share, providing a micro-level assessment of the labour market implications of broadband infrastructure.

Traditional output dynamics: A structural perspective

We provide theoretical underpinnings to the traditional IS curve by using the concept of basic and non-basic goods and services in the consumption basket. An extended version of this IS curve incorporates the effects of functional income distribution by appealing to rule-of-thumb behavior. An empirical analysis for both emerging and advanced economies shows that this IS curve does not suffer from the "IS puzzle," a weakness that affects its new Keynesian counterpart, when a measure of the nominal interest rate is used. The interest rate negatively and significantly affects output. Secondly, the second-order term typically specified in the output dynamics does not arise from structural consumption behavior. Thirdly, although we find significant rule-of-thumb behavior in that the labor share is statistically significant, optimal behavior dominates economies. Lastly, basics make up an overwhelming component of the consumption basket, which explains the sluggish response of output to shocks. The implication is that there is a need to extend the basic two-equation model into a 3-equation system by adding the dynamics of the labor share.

How industrial robots affect employment: firm-level evidence from China

Using China’s Annual Survey of Industrial Firms (ASIF) and the China Customs Database (CCD) from 2000 to 2013, this study explores the impact of adopting industrial robots on the employment in Chinese manufacturing firms. We find a positive association between the adoption of industrial robots and the employment scale of China’s manufacturing enterprises. We also find evidence that the positive association is more pronounced in capital-intensive industries, non-state-owned firms, and firms in coastal areas. Mechanism test indicates that ‘scale expansion effects’ and ‘productivity effects’ are the main channels through which industrial robots promote employment growth. Further analysis indicates that the adoption of industrial robots did not have obvious industry spillover effects. Additionally, other labor market results demonstrate that the adoption of industrial robots significantly increases the average wage level of enterprises while decreasing their labor share. This study provides micro-level evidence revealing the impact of adopting industrial robots on employment in developing countries. It also provides important policy implications for countries worldwide seeking to promote automated production.

Разработка эргономичного мобильного приложения для патентного поиска

In the context of the digital transformation of the economy, the share of intellectual labour is significantly increasing, especially in science and education. In these conditions, it is important to take into account indicators of professional reliability, which are directly related to the employee’s performance quality. The essence of the concepts of “intellectual work” and “professional reliability” is revealed. The functional system of intellectual work is substantiated based on considering the professional reliability indicators. The specificity of the information impact as a production factor and stressor in professional activity is shown. Ideas about information load and information hygiene are given. The paper analyses and discusses the results of scientific research on identifying factors of intellectual work in the context of education digitalization, which negatively affect health and cause teachers’ professional diseases. Recommendations are theoretically substantiated and given for implementing areas of information hygiene and mental hygiene of intellectual work as a condition for the teacher’s professional reliability in the context of education digitalization.

Ожидаемые проблемы человеко-машинного взаимодействия в системах Искусственного Интеллекта

In the context of the digital transformation of the economy, the share of intellectual labour is significantly increasing, especially in science and education. In these conditions, it is important to take into account indicators of professional reliability, which are directly related to the employee’s performance quality. The essence of the concepts of “intellectual work” and “professional reliability” is revealed. The functional system of intellectual work is substantiated based on considering the professional reliability indicators. The specificity of the information impact as a production factor and stressor in professional activity is shown. Ideas about information load and information hygiene are given. The paper analyses and discusses the results of scientific research on identifying factors of intellectual work in the context of education digitalization, which negatively affect health and cause teachers’ professional diseases. Recommendations are theoretically substantiated and given for implementing areas of information hygiene and mental hygiene of intellectual work as a condition for the teacher’s professional reliability in the context of education digitalization.