What Determines Regional Labor Shares? Evidence from Korea

David Kim and Woo-Yung Kim

No 2018-06, Working Papers from University of Sydney, School of Economics

Abstract: This study investigates the explanatory forces behind changes in labor shares over 2000-2014 in Korea. Unlike previous studies focusing on cross-national differences in labor shares, we focus on the changes in labor shares across regions. Utilizing Census of Establishments and the Economically Active Population Survey and constructing variables at the regional level, we estimate an array of cross-regional and panel VAR models. Our estimates from fixed effects models suggest that the movements in regional labor shares can be largely explained by differences in per capita income growth, the concentration of service industry, the average tenure of firms and union density. Results from panel VAR models generally confirm those obtained from the fixed effects models and also indicate that the effects of those factors on the labor share are significantly different between metropolitan cities and provinces. Technological progress plays a more prominent role in provinces than in cities while the concentration of markets (size of markup) is more important in cities than in provinces to explain the labor share movements. We also find evidence that trade dependence leads to a decline in labor share of income, which reflects capital mobility and labor saving competitive forces across nations. Our results show that it is important to take into account heterogeneities in product and labor markets in order to understand the changes in labor shares in regional income. This suggests that regional variations in industry and trades should be important considerations for policies aimed at targeting labor income.

Keywords: labor share; Herfindahl-Hirschman index; fixed effects model; panel VAR; regional analysis (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-geo
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