Declining Labor Share and Innovation

Georges Vivien Houngbonon and Pascal Da Costa ()

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Abstract: In this paper, we document declining labor share using a sample of international companies from developed economies. While this trend makes internal funds available for financing innovation, we find that R&D expenditures fall alike. Firm-level fixed effects estimation , controlling for the intensity of competition and financial constraints, confirms a positive correlation between labor share and R&D expenditures. A counterfactual analysis shows that a percentage point fall in labor share reduces output growth by 0.01 percentage point in the short run, and up to 0.02 percentage point in the long run, due to declining innovation.

Keywords: Innovation; Labor share (search for similar items in EconPapers)
Date: 2017-12-01
New Economics Papers: this item is included in nep-ino and nep-tid
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