The Structural Determinants of the Labor Share in Europe

IMF Working Papers, March 22, 2019

Source details

The labor share in Europe has been on a downward trend.
The decline is concentrated in manufacture and among low- to mid-skilled workers.
The shifting nature of employment away from full-time jobs and a rollback of employment protection, unemployment benefits and unemployment benefits have been the main contributors.
Technology and globalization hurt sectors where jobs are routinizable but helped others that require specialized skills.
High-skilled professionals gained labor share driven by productivity aided by flexible work environments.
Low- and mid-skilled workers lost labor share owing to globalization and the erosion of labor market safety nets.

Employment composition shifts: movement away from full-time jobs contributed to lower labor share.
Policy rollback: reductions in employment protection and unemployment benefits (noted twice in source text) are identified as major contributors.
Technology: automation and routinization reduced labor share in routine-intensive sectors, while productivity gains in specialized-skill sectors increased labor share for high-skilled workers.
Globalization: import penetration and international competition reduced labor share for workers in tradable, routinizable occupations, particularly low- and mid-skilled workers.

Sectoral concentration: manufacturing shows the most pronounced labor share decline.
Skill polarization: divergence between high-skilled professionals (gains) and low- to mid-skilled workers (losses).
Interaction effects: flexible work environments amplified productivity gains for high-skilled workers; erosion of labor market safety nets amplified losses for lower-skilled workers.

Source: "The Structural Determinants of the Labor Share in Europe", IMF Working Papers, Dilyana Dimova, March 22, 2019.