 Can the HOS model explain changes in labor shares? A tale of trade and wage rigiditiesBruno Decreuse and Paul Maarek Economic Systems, 2017, vol. 41, issue 4, 472-491 Abstract: This paper questions the ability of the standard HOS (Heckscher-Ohlin-Samuelson) model to explain changes in the labor shares (LS) of income in OECD countries. We use the Davis (1998) version of the HOS model with wage rigidity in a sub-group of countries. We show that trade openness with developing countries reduces LS in rigid wage countries and does not affect LS in free wage countries. This pattern is induced by factor reallocation towards capital-intensive sectors in rigid wage countries. Using the KLEMS dataset for 8 OECD countries over the period 1970–2005, we show that the weight of capital-intensive sectors substantially increased in continental European countries, while it did not change or even decreased in the US and the UK. Fixed effects regressions suggest that trade intensity with China explains between 50% (IV estimates) and 80% (OLS estimates) of the observed differential labor share change between Continental Europe and Anglo-Saxon countries. Keywords: Davis model; Factor reallocation; Elasticity of substitution; Unemployment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:41:y:2017:i:4:p:472-491 DOI: 10.1016/j.ecosys.2017.08.004 Access Statistics for this article Economic Systems is currently edited by R. Frensch More articles in Economic Systems from Elsevier Contact information at EDIRC. |
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