Working Paper: CEPR ID: DP1958
Authors: Samuel Bentolila; Gilles Saint-Paul
Abstract: In this paper we study the evolution of the labour 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 labour and the real wage (due to, e.g. product market power, union bargaining, and labour 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.
Keywords: labour share; capital-output ratio
JEL Codes: E25; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor share (D33) | capital-output ratio (E23) |
| price of imported materials (F14) | labor share (D33) |
| skill mix (J24) | labor share (D33) |
| product market power (D42) | discrepancies between marginal product of labor and real wages (J39) |
| union bargaining (J50) | discrepancies between marginal product of labor and real wages (J39) |
| labor adjustment costs (J39) | discrepancies between marginal product of labor and real wages (J39) |
| real oil prices (Q31) | labor share (D33) |
| changes in union bargaining power (J50) | movements in labor share (J49) |
| discrepancies between wages and marginal product of labor (J39) | wage gaps (J31) |