How Has The Globalization of Labor Affected the Labor Income Share in Advanced Countries?

IMF Working Papers, December 1, 2007

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Title: How Has The Globalization of Labor Affected the Labor Income Share in Advanced Countries?
Authors: Florence Jaumotte, Irina Tytell
Date: December 1, 2007
Core question: Assess contributions of globalization, technological progress, and labor market policies to the decline in the labor share in advanced countries.

Sample: 18 advanced countries
Period covered: 1982- 2002
Approach: Uses a labor share equation derived from a translog revenue function to decompose effects on the labor share.
Sector focus: Particular attention to unskilled sectors and the information and communications sectors.

Labor markets have become increasingly integrated over the last two decades, coinciding with:
- the entry of China, India and the former Eastern bloc into the world trading system,
- the removal of restrictions on trade and capital flows,
- rapid technological progress.
The share of labor in national income decreased in most advanced countries.
Empirical results for 18 advanced countries over 1982- 2002 suggest:
- Globalization was only one of several factors that have affected the labor share.
- Technological progress, especially in the information and communications sectors, has had a bigger impact.
- The impact of technological progress was particularly pronounced on the labor share in unskilled sectors.