The Fall (and Rise) of Labour Share in New Zealand

New Zealand Economic Papers, 52(2), 109-130. doi:10.1080/00779954.2016.1219763

The University of Auckland Business School Research Paper Series

Posted: 12 Jan 2022

See all articles by Benjamin Bridgman

Benjamin Bridgman

Government of the United States of America - Bureau of Economic Analysis (BEA)

Ryan Greenaway-McGrevy

University of Auckland Business School

Date Written: 2018

Abstract

The share of national income going to labour in New Zealand fell substantially between the 1970s and the end of the century. Approximately half of this decline was then recovered in the following decade. In this paper, we argue that the decline from the mid-1980s onwards is due to public sector reforms. Corporatisation re-orientated the public trading enterprises away from a broad range of social and trading objectives towards generating profits, while increased fiscal discipline in non-market government departments reduced payroll costs. Consistent with this hypothesis, we show that most of the decline in aggregate labour share from the mid-1980s onwards can be attributed to a significant fall in the labour share of the public sector. To more formally analyse the effects of the reforms, we build a simple model of structural transition. The model yields several predictions that are consistent with observed trends in sectoral labour share. First, there is a large and permanent decline in public sector labour share after the reforms. Second, there is a smaller, short-run decline in private sector labour share that is reversed over the long run. The model can, therefore, explain not only the decline in aggregate labour share from the mid-1980s onwards; it can also explain the partial recovery in labour share beginning in 2002. Full paper available at http://doi.org/10.1080/00779954.2016.1219763

Keywords: Labour share, inequality, economic reform, state-owned enterprises

Suggested Citation

Bridgman, Benjamin and Greenaway-McGrevy, Ryan, The Fall (and Rise) of Labour Share in New Zealand (2018). New Zealand Economic Papers, 52(2), 109-130. doi:10.1080/00779954.2016.1219763, The University of Auckland Business School Research Paper Series, Available at SSRN: https://ssrn.com/abstract=4006782

Benjamin Bridgman (Contact Author)

Government of the United States of America - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

Ryan Greenaway-McGrevy

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

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