Declining Labour Income Share and Personal Income Inequality in Advanced Countries

Abstract

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.