Why Is Labor Receiving a Smaller Share of Global Income? Theory and Empirical Evidence

IMF Working Papers, July 24, 2017

Source details

Canonical URL: Why Is Labor Receiving a Smaller Share of Global Income? Theory and Empirical Evidence

The paper documents a downward trend in the labor share of global income since the early 1990s.
The decline is heterogeneous across countries, industries, and worker skill groups.
In advanced economies:
- Technological progress, together with varying exposure to routine occupations, explains about half the overall decline.
- The negative impact is larger on middle-skilled workers.
In emerging markets:
- The evolution of the labor share is explained predominantly by global integration.
- The expansion of global value chains contributed to raising the overall capital intensity in production.

Uses a newly assembled dataset to analyze labor share trends across countries, industries, and worker skill groups.
Subject tags include: Emerging and frontier financial markets, Financial markets, Global value chains, Globalization, Labor, Labor share.
Keywords include: advanced economy, automation, developing economy, Emerging and frontier financial markets, Global, global value chains, income share, labor share, labor share decline, labor share dynamics, low-labor-share sector, routinization, share of income, shift-share analysis, WP.

Technological progress and automation (routinization) are central mechanisms in advanced economies, affecting middle-skilled workers disproportionately.
Global integration and the expansion of global value chains are central mechanisms in emerging markets, raising capital intensity and influencing the labor share.
The paper combines empirical documentation of trends with analysis of these drivers to explain observed heterogeneity.