The labour income share in the euro area

Elizaveta Archanskaia, Eric Meyermans and Anneleen Vandeplas

Quarterly Report on the Euro Area (QREA), 2019, vol. 17, issue 4, 41-57

Abstract: This section analyses the evolution of the labour income share at the national and sectoral levels across euro area Member States. For the euro area as a whole, changes in the labour income share mostly reflect countercyclical dynamics over 2000-2017. National labour income shares are strongly countercyclical as well, but there are country specificities and some evidence of cross-country convergence. For most euro area Member States, the observed evolution of the national labour share is attributable to within-sectoral changes in the labour income share, in particular its reduction in manufacturing and its increase in business services. A reduced form estimation approach suggests that technological progress and capital deepening are the main determinants of sectoral labour income shares. These factors determine sectoral labour productivity growth, providing the basis for a sustained increase in the sectoral real wage, but they may also result in a reduction of the sectoral labour share if technical change is capital-augmenting and capital-labour substitutability is sufficiently high. As capital-labour substitutability is likely decreasing in the employees’ level of skills, such results suggest that investing in skills can produce a double dividend: strengthening macro-economic performance and productivity growth on the one hand, and supporting a commensurate development of workers’ living standards.

Keywords: Euro area economy; Capital Markets Union; convergence; resilience; technological progress capital deepening; shift-share decomposition labour share; labour income share; wage share; minimum wage (search for similar items in EconPapers)
Date: 2019
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