Explaining movements in the labor share

Abstract

In this paper we study the evolution of the labor share in the OECD. We show it is essentially related to the capital-output ratio; that this relationship is shifted by factors like the price of imported materials or capital-augmenting technological progress: and that discrepancies between the marginal product of labor and the real wage -due to, e.g., labor adjustment costs or union wage bargaining- cause departures from it. We also provide empirical evidence on the determinants of the labor share with panel data on 13 industries and 12 countries for 1972-93. Copyright ©2003 by the authors. All rights reserved.