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Determinants of the wage share: a cross-country comparison using sectoral data

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  • Guschanski, Alexander
  • Onaran, Özlem
Abstract
There has been a significant decline in the share of wages in GDP in both developed and developing countries since the 1980s. This paper analyses the determinants of the wage share (labour compensation as a ratio to value added) using sectoral data with country specific estimations for selected OECD countries. We compile a comprehensive sector-level dataset of eight OECD countries (Denmark, France, Germany, Italy, Spain, Sweden, the UK, the US) for the period of 1970 to 2011, which allows us to trace the developments in the wage share across high and low skilled sectors and within manufacturing and service industries. Our findings provide new insights with regard to the drivers of falling wage share. By conducting country specific estimations, we analyse how institutional differences in industrial relations, as well as social security and welfare regimes affect the wage share. Our findings lend strong support to the political economy approach to functional income distribution. Technological change had an impact, especially in Italy, the US and for the total country sample, but the effects are not robust with respect to the use of different specifications and the wage share in most countries in our sample appears to be driven by variables reflecting the bargaining power of labour such as union density, adjusted bargaining coverage and government spending. The relevance of these variables differs considerably across countries, lending support to our approach of country specific estimations. We find that globalisation had a strong impact on the wage share in all countries. The effect of globalisation on the wage share was least strong in Denmark. In Germany, and to a lesser extent in the UK, the effect is due to outward FDI and intermediate import penetration which reflects the impact of international outsourcing practices. Intermediate imports penetrations had no significant impact in Spain while FDI played a smaller role in France and the US. Different institutional variables appear to be relevant for each country. Germany exhibits the most robust positive effect of union density on the wage share. Conversely, collective bargaining coverage, together with social government spending, plays a more important role in France, the UK and the US. Financialisation had the most pronounced effect in the UK and the US, while it appears to be also relevant in Germany. We find mixed results for the effect of personal income inequality on the wage share. However, there is indicative confirmation for a negative effect in Germany, the UK and the US.

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  • Guschanski, Alexander & Onaran, Özlem, 2016. "Determinants of the wage share: a cross-country comparison using sectoral data," Greenwich Papers in Political Economy 15847, University of Greenwich, Greenwich Political Economy Research Centre.
    • Handle: RePEc:gpe:wpaper:15847
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    References listed on IDEAS

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    Cited by:

    1. Pianta, Mario & Coveri, Andrea & Reljic, Jelena, 2021. "The Sectoral Innovation Database, 1994-2016. Methodological Notes," MPRA Paper 106780, University Library of Munich, Germany.
    2. Guschanski, Alexander & Onaran, Özlem, 2018. "The labour share and financialisation: Evidence from publicly listed firms," Greenwich Papers in Political Economy 19371, University of Greenwich, Greenwich Political Economy Research Centre.
    3. Ivan D. Trofimov, 2019. "Stability of Labour Shares: Evidence from OECD Economies," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 17(1), pages 57-89.
    4. Reddy, Niall, 2024. "“Downsize And Distribute” Or “Merge And Monopolize”? A Critique Of Corporate Financialization Theories," SocArXiv 2zy5h, Center for Open Science.
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    6. Christos Pierros, 2020. "A Labor Market-Augmented Empirical Stock-Flow Consistent Model Applied to the Greek Economy," Economics Working Paper Archive wp_949, Levy Economics Institute.
    7. Andrea Coveri & Mario Pianta, 2019. "The Structural Dynamics of Income Distribution:Technology, Wages and Profits," Working Papers 1901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    8. Alexander Guschanski & Özlem Onaran, 2018. "Determinants of the Wage Share: A Cross-country Comparison Using Sectoral Data," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 19(02), pages 44-54, July.
    9. Anwesha Basu & C. Veeramani, 2021. "Labour share in Indian economy: An Exploratory analysis of the role of trade, technology and structural transformation," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-027, Indira Gandhi Institute of Development Research, Mumbai, India.
    10. Kostarakos, Ilias, 2020. "Determinants of the (non-Housing) Labour Income Share in the EU," Papers WP693, Economic and Social Research Institute (ESRI).
    11. Walter Paternesi Meloni & Antonella Stirati, 2021. "What has driven the delinking of wages from productivity? A political economy-based investigation for high-income economies," Working Papers PKWP2104, Post Keynesian Economics Society (PKES).
    12. Giorgos Gouzoulis, 2021. "Finance, Discipline and the Labour Share in the Long‐Run: France (1911–2010) and Sweden (1891–2000)," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 568-594, June.
    13. Giorgos Gouzoulis & Collin Constantine, 2020. "The Political Economy of Inequality in Chile and Mexico: Two Tales of Neoliberalism," Working Papers 235, Department of Economics, SOAS University of London, UK.
    14. Alexander Guschanski & Özlem Onaran, 2016. "Why did the wage share fall? Industry level evidence from Austria," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 42(4), pages 557-589.
    15. Christos Pierros, 2021. "Assessing the internal devaluation policy implemented in Greece in an empirical stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 905-943, November.
    16. repec:ces:ifofor:v:19:y:2018:i:2:p:44-54 is not listed on IDEAS
    17. Gouzoulis, Giorgos & Constantine, Collin, 2020. "The Political Economy of Inequality in Chile and Mexico: Two Tales of Neoliberalism," SocArXiv gruzp, Center for Open Science.
    18. Onaran, Özlem & Guschanski, Alexander, 2018. "The causes of falling wage share: sectoral and firm level evidence from developed and developing countries – what have we learned?," Greenwich Papers in Political Economy 19373, University of Greenwich, Greenwich Political Economy Research Centre.
    19. Georgios Chortareas & Emmanouil Noikokyris, 2021. "Investment and labor income shares," Economic Change and Restructuring, Springer, vol. 54(3), pages 807-820, August.

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    More about this item

    Keywords

    Wage share; income distribution; labour unions; bargaining;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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