Development and the labor share
Paul Maarek () and
Elsa Orgiazzi ()
No 2015-09, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise
We highlight a U-shaped relationship between development and the labor share of income. We exploit the “within dimension” of a panel dataset for the labor share in the manufacturing sectors of developing countries. Data is also available at the disaggregated level for 28 manufacturing subsectors. We show that the U-shaped pattern of the labor share is also observed at the subsector level suggesting that it does not correspond to reallocation forces across sectors during the development process. We show that standard theories of develop- ment economics that feature duality on the labor market generate such a pattern. At earlier stages of development, productivity gains are not compensated by wage increases as most of the workforce’s outside opportunities remain in the traditional sector where firms’ productivity is low. At later stages, the labor share increases as the result of wage competition in the modern, high productivity sector.
Keywords: Development; The labor share; Dual labor market (search for similar items in EconPapers)
JEL-codes: E25 J42 O17 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2015-09
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