## Drivers of Declining Labor Share of Income

_IMF Blog, April 12, 2017_

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**Canonical URL:** [Drivers of Declining Labor Share of Income](https://www.imf.org/en/blogs/articles/2017/04/12/drivers-of-declining-labor-share-of-income)

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## Bibliographic details
- Authors: Mai Chi Dao, Mitali Das, Zsoka Koczan, Weicheng Lian
- Published: April 12, 2017

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### Overview
- After being largely stable in many countries for decades, the share of national income paid to workers has been falling since the 1980s.
- Chapter 3 of the April 2017 World Economic Outlook finds that this trend is driven by rapid progress in technology and global integration.
- Labor’s share of income declines when wages grow more slowly than productivity, or the amount of output per hour of work, resulting in a growing fraction of productivity gains going to capital and likely raising income inequality.

### Trending patterns
- Advanced economies:
  - Labor income shares began trending down in the 1980s.
  - They reached their lowest level of the past half century just prior to the global financial crisis of 2008, and have not recovered materially since.
  - Labor income shares now are almost 4 percentage points lower than they were in 1970.
- Emerging market and developing economies:
  - Labor shares have declined since the early 1990s, especially in larger economies in this group.
  - In China, labor shares fell by almost 3 percentage points despite impressive gains in poverty reduction over the past two decades.
- Political economy:
  - As growth remains subpar in many countries, recognition that gains from growth have not been broadly shared has strengthened a backlash against economic integration and bolstered support in favor of inward-looking policies in several advanced economies.

### Technology as a key driver in advanced economies
- About half of the decline in labor shares in advanced economies can be traced to the impact of technology.
- The decline was driven by a combination of:
  - rapid progress in information and telecommunication technology, and
  - a high share of occupations that could be easily be automated.
- Global integration also contributed:
  - Its contribution is estimated at about half that of technology.
  - Participation in global value chains typically implies offshoring of labor-intensive tasks, lowering labor shares in tradable sectors.
- Combined explanatory power:
  - Technology and global integration explain close to 75 percent of the decline in labor shares in Germany and Italy.
  - They explain close to 50 percent in the United States.
- Attribution caveat:
  - It is difficult to cleanly separate the impact of technology from global integration, or from policies and reforms, but results for advanced economies are characterized as compelling.

### Global integration in emerging market and developing economies
- Global integration has allowed expanded access to capital and technology, raised productivity and growth, and lifted millions from poverty.
- However, it may also be associated with declining labor income shares by shifting production toward more capital-intensive activities.
- Findings:
  - Global integration, and more specifically participation in global value chains, was the key driver of declines in labor shares in emerging markets.
  - This effect can be interpreted as benign: it results from capital deepening that is not necessarily accompanied by dislocation of employment or reduction in wages.
  - In Turkey, the decline in labor income share of around 5 percentage points is explained almost exclusively by the rapid rise in participation in global value chains.
- Technology’s role:
  - Technology has played a small role in these economies, reflecting a smaller decline in the relative price of investment goods and a lower share of automatable jobs.

### Skill and sectoral patterns: hollowing out of the middle
- Declines in labor shares in advanced economies have been particularly sharp for middle-skilled labor.
- Routine-biased technology has displaced many tasks performed by middle-skilled workers, contributing to job polarization toward high-skilled and low-skilled occupations.
- Global integration has reinforced this “hollowing-out” as firms in advanced economies gain access to a global labor supply through cross-border value chains.

### Policy implications and next steps
- Technological advancement and global economic integration have been key drivers of global prosperity, but their effects on labor shares challenge policymakers to find ways to spread benefits more broadly.
- The design of specific policy responses will have to depend on country circumstances and be anchored in their social contracts.
- Part 2 of the blog will discuss findings on skill and sectoral trends in labor income shares, possible policy responses, and a new cross-country index to measure the share of occupations at risk of being automated.

*Source: Mai Chi Dao, Mitali Das, Zsoka Koczan, Weicheng Lian, "Drivers of Declining Labor Share of Income", April 12, 2017.*

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## Content in this bundle

- **劳动力收入比重下降的驱动因素; IMF博客**
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  - [劳动力收入比重下降的驱动因素; IMF博客 (PDF)](/external/chinese/np/blog/2017/041017c.pdf){rel="external" type="application/pdf"}
- **雇用者所得比率の低下要因: マイ・チー・ダオ、 ミタリ・ダス、 ジョカ・コザン、 ウェイチェン・リャン; IMFブログ 2017年4月10日掲載**
  - [雇用者所得比率の低下要因: マイ・チー・ダオ、 ミタリ・ダス、 ジョカ・コザン、 ウェイチェン・リャン; IMFブログ 2017年4月10日掲載 (Markdown version)](/external/japanese/np/blog/2017/041017jb.pdf.md){rel="alternate" type="text/markdown"}
  - [雇用者所得比率の低下要因: マイ・チー・ダオ、 ミタリ・ダス、 ジョカ・コザン、 ウェイチェン・リャン; IMFブログ 2017年4月10日掲載 (PDF)](/external/japanese/np/blog/2017/041017jb.pdf){rel="external" type="application/pdf"}
- **041017ar**
  - [041017ar (Markdown version)](/external/russian/np/blog/2017/041017ar.pdf.md){rel="alternate" type="text/markdown"}
  - [041017ar (PDF)](/external/russian/np/blog/2017/041017ar.pdf){rel="external" type="application/pdf"}

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## References

- [Chapter 3](http://www.imf.org/en/Publications/WEO/Issues/2017/04/04/world-economic-outlook-april-2017)
- [World Economic Outlook](http://www.imf.org/en/publications/weo)
- [falling labor income shares](https://blog-imfdirect.imf.org/2017/03/20/chart-of-the-week-inequality-and-the-decline-in-labor-share-of-income/)
- [study](http://www.imf.org/)

_Source: https://www.imf.org/en/blogs/articles/2017/04/12/drivers-of-declining-labor-share-of-income_