Explaining Movements in the Labor Share
CEPR Discussion Paper Series No. 1958
Posted: 10 Mar 1999
Date Written: September 1998
In this paper we study the evolution of the labor share in the OECD since 1970. We present a theoretical model showing that it is essentially related to the capital-output ratio; that this relationship is shifted by factors like the price of imported materials or the skill mix; and that discrepancies between the marginal product of labor and the real wage (due to, e.g., product market power, union bargaining, and labor adjustment costs) cause departures from it. We estimate the model with panel data on 15 industries and 14 countries for 1973-93 and derive the evolution of the wage gap in Germany and the United States.
JEL Classification: E25, J30
Suggested Citation: Suggested Citation