The Natural Resource Boom and the Uneven Fall of the Labor Share

58 Pages Posted: 7 Aug 2021

See all articles by Andrés O. Dávila

Andrés O. Dávila

Universidad de Los Andes, Facultad de Economía; CEDE

Manuel Fernández Sierra

Universidad de Los Andes; IZA

Hernando Zuleta

Universidad de los Andes, Colombia

Abstract

We study the effect of the upsurge of natural resources income from the commodity price boom of the 2000s on the functional distribution of income. To do so, we build a general equilibrium model of Dutch disease that characterizes how natural resource windfalls affect equilibrium factor shares. The theory suggests that the response of factor shares to exogenous changes in commodity prices depends on the relative intensity in which factors are used in the tradable and natural resource sectors. We construct estimates of income shares accruing to raw labor, human capital, physical capital, and natural resources, and quantify the effect of the resource boom on factor shares. For identification, we use a two-way fixed effects strategy and a differential exposure design to instrument commodity prices. We find that a natural resource boom negatively impacts the total labor, human capital, and physical capital shares, while the raw labor share remains unchanged. Our estimates suggest that the natural resource boom explains nearly 25.7 percent of the global decline of the total labor share during the 2000s. We also find a redistribution effect within labor income that indicates that the fall of the labor share was unevenly distributed against human capital.

JEL Classification: D33, F14, J31, O13

Suggested Citation

Dávila, Andrés O. and Fernández Sierra, Manuel and Zuleta, Hernando, The Natural Resource Boom and the Uneven Fall of the Labor Share. IZA Discussion Paper No. 14592, Available at SSRN: https://ssrn.com/abstract=3900854 or http://dx.doi.org/10.2139/ssrn.3900854

Andrés O. Dávila (Contact Author)

Universidad de Los Andes, Facultad de Economía ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

CEDE ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Manuel Fernández Sierra

Universidad de Los Andes ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
+57 (1) 339 4949 Ext. 5025 (Phone)

HOME PAGE: http://https://sites.google.com/view/manuelfernandezsierra

IZA ( email )

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

Hernando Zuleta

Universidad de los Andes, Colombia ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

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