Macroeconomic Determinants of the Labour Share of Income: Evidence from OECD Economies

Ivan D. Trofimov, Nazaria Md. Aris and Muhammad K. F. Bin Rosli

MPRA Paper from University Library of Munich, Germany

Abstract: The study investigates the relationships between the labour share of income and several macroeconomic variables – the GDP growth, inflation, unemployment, as well as GDP gap and capacity utilization – in industrialised economies between 1960 and the 2010s. Three complementary hypotheses that relate macroeconomic determinants to the labour share dynamics are considered: 'overhead labour' hypothesis, 'realization theory/wage lag' hypothesis and the 'rising strength of labour' hypothesis. The study employs a sequential procedure: testing for the stationarity properties of the variables, using bounds test to identify the presence of cointegrating relationships, and estimating long-run relationships using ARDL or OLS methods. The results show that all three hypotheses are supported only in a limited number of economies, whilst in the majority of cases only certain relationships are prominent. On the whole, the GDP growth rate, the unemployment rate, and to a smaller extent capacity are found to be the principal determinants of the labour share, while change in the level of prices is of subsidiary importance.

Keywords: Labour share; time series; macroeconomic determinants (search for similar items in EconPapers)
JEL-codes: C22 E25 J30 (search for similar items in EconPapers)
Date: 2018-03-15
New Economics Papers: this item is included in nep-eec and nep-mac
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