Macroeconomic determinants of the labour share of income: Evidence from OECD economies

Ivan D. Trofimov, Nazaria Md. Aris and Muhammad Khairil Firdaus Bin Rosli
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Ivan D. Trofimov: Kolej Yayasan Saad (KYS) Business School, Malaysia
Nazaria Md. Aris: University of Malaysia, Sarawak, Malaysia
Muhammad Khairil Firdaus Bin Rosli: University of Malaysia, Sarawak, Malaysia

Theoretical and Applied Economics, 2018, vol. XXV, issue 3(616), Autumn, 25-48

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)
Date: 2018
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