Sectoral Shifts in Europe and the United States: How They Affect Aggregate Labour Shares and the Properties of Wage Equations

OECD Economics Department No. 326

49 Pages Posted: 3 May 2002

See all articles by Alain de Serres

Alain de Serres

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Christine de la Maisonneuve

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: April 2002

Abstract

This paper sheds light on the importance of aggregation bias in the analysis of wage shares developments over time and across countries. We focus on five European countries and the United States and show that the trend decline in the aggregate wage share observed in these countries over much of the 1980s and 1990s partly reflects changes in the sectoral composition of the economy. The application of a fixed-weight aggregation method changes the profile of the observed wage share in a significant way: in particular there is no longer sign of an overshooting of the wage share levels of the early-1970s. Error-correction wage equations based on the adjusted wage shares generally have a better regression fit and show long-run elasticities of real wages to unemployment that vary less across countries and are substantially lower than those obtained with observed shares. These results are broadly confirmed by wage regressions using sectoral data and the Pooled Mean Group estimator.

Keywords: wage shares, aggregation bias, wage equations

JEL Classification: E24, E25, J64

Suggested Citation

de Serres, Alain and Scarpetta, Stefano and de la Maisonneuve, Christine, Sectoral Shifts in Europe and the United States: How They Affect Aggregate Labour Shares and the Properties of Wage Equations (April 2002). OECD Economics Department No. 326. Available at SSRN: https://ssrn.com/abstract=307425 or http://dx.doi.org/10.2139/ssrn.307425

Alain De Serres

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Stefano Scarpetta (Contact Author)

OECD, Directorate for Employment, Labour and Social Affairs ( email )

2 rue Andre Pascal
Paris Cedex 16, 75016
France
+33 1 45 24 19 88 (Phone)
+33 1 45 24 18 59 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Christine De la Maisonneuve

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

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