Effects of Globalization on Labor's Share in National Income

35 Pages Posted: 12 Jan 2007

Date Written: Janurary 2007

Abstract

The past two decades have seen a decline in labor's share of national income in several industrial countries. This paper analyzes the role of three factors in explaining movements in labor's share - factor-biased technological progress, openness to trade, and changes in employment protection - using a panel of 18 industrial countries over 1960-2000. Since most studies suggest that globalization and rapid technological progress (associated with accelerated information technology development) began in the mid-1980s, the sample is split in 1985 into preglobalization/pre-IT revolution and postglobalization/post-IT revolution eras. The results suggest that the decline in labor's share during the past few decades in the OECD member countries may have been largely an equilibrium, rather than a cyclical, phenomenon, as the distribution of national income between labor and capital adjusted to capital-augmenting technological progress and a more globalized world economy.

Keywords: Labor, National income accounts, Globalization, Labor productivity, Employment policy, Trade policy

JEL Classification: E1, F02, F16

Suggested Citation

Guscina, Anastasia, Effects of Globalization on Labor's Share in National Income (Janurary 2007). IMF Working Paper No. 06/294, Available at SSRN: https://ssrn.com/abstract=956758

Anastasia Guscina (Contact Author)

International Monetary Fund (IMF) ( email )

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