The Labor Share of Income Around the World: Evidence from a Panel Dataset

Abstract

Functional income distribution has been central to the discussionson distribution since the beginning of the 19th century. However,since the 1960s, attention towards it has been declining. In veryrecent years, a renewed interest has brought the subject back tothe fore. Nevertheless, there has been little systematic attemptto put together a common database. Two main reasons can be identified:first, because of their nature, factor shares are very difficultto define and many issues arise from their measurement, especiallyconcerning the treatment of self-employment income; second, theyhave for a long time been perceived as constant across time and space.This paper intends to target both these issues. Firstly, by suggestingan adjustment to the usual approaches of measurement, it compilesan extensive dataset of the labour share across 89 countries - bothdeveloping and developed - for all or part of the period 1970-2009.Results show that the measure, when compared to other five measurespreviously used in the literature, is correlated but non-redundant.The dataset may therefore be very useful for further research onthe determinants of income shares. Secondly, this study uses descriptivestatistics to provide an account of the performance of factor sharesover time and across countries. Contrary to the traditional assumptionof stability of factor shares, our data present evidence of considerablevariability: there seems to be a general reduction in the labourshare around the world over the last few decades, in particular fromthe mid-1980s onwards. Moreover, the analysis shows that, as soonas we take self-employment into proper consideration, the relationshipbetween factor shares and levels of economic development is not anymore straightforward. In other words, it is not entirely true thatpoorer countries have lower labour shares, as suggested by previousliterature.