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Determinants of the wage share: A cross-country comparison using sectoral data

Determinants of the wage share: A cross-country comparison using sectoral data

Guschanski, Alexander ORCID: 0000-0002-7818-8264 and Onaran, Özlem ORCID: 0000-0002-6345-9922 (2018) Determinants of the wage share: A cross-country comparison using sectoral data. CESifo Forum, 19 (2). pp. 44-54. ISSN 1615-245X

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Previous literature has put forward two main hypotheses to explain the decline in the share of wages in GDP: The technological change hypothesis suggests that increasing substitution of capital for labour drives the decline in the labour share. The bargaining power hypothesis sees a decline in the bargaining power of labour as the main explanatory factor. This paper tests these two hypotheses by means of country specific estimations using industry level data for six OECD countries (France, Germany, Italy, Spain, the U.K., the U.S.). We compile a comprehensive sector-level dataset for the 1970-2011 period, which allows us to trace changes in the wage share across high and low skilled sectors and within manufacturing and service industries.

Our findings lend support to the bargaining power hypothesis. Technological change had an impact, especially in Italy, Spain and the U.S., but the effects are not robust across different specifications. The relevance of variables reflecting the bargaining power of labour differs considerably across countries, lending support to our approach of country specific estimations. We find that union density is the most relevant measure of the bargaining power of labour in highly coordinated bargaining regimes (Germany, Italy, Spain), while collective bargaining coverage and social government spending is more important in countries where firm-level bargaining dominates (France, the U.K, the U.S.). Financialisation reduced the bargaining power of labour mainly in the U.K., the U.S and Germany. Different measures of globalisation had an impact on the wage share in all countries.

Item Type: Article
Uncontrolled Keywords: wage share, income distribution, labour market institutions, bargaining
Subjects: H Social Sciences > H Social Sciences (General)
Faculty / School / Research Centre / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
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Last Modified: 13 Nov 2020 13:17

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