DEPP working paper

This Working Paper is part of the Development Economics and Public Policy series

The Labour Share of Income around the World. Evidence from a Panel Dataset

Marta Guerriero.

Abstract

Functional income distribution has been central to the discussions on distribution since the beginning of the 19th century. However, since the 1960s, attention towards it has been declining. In very recent years, a renewed interest has brought the subject back to the fore. Nevertheless, there has been little systematic attempt to put together a common database. Two main reasons can be identified: first, because of their nature, factor shares are very difficult to define and many issues arise from their measurement, especially concerning the treatment of self-employment income; second, they have for a long time been perceived as constant across time and space.

This paper intends to target both these issues. Firstly, by suggesting an adjustment to the usual approaches of measurement, it compiles an extensive dataset of the labour share across 89 countries - both developing and developed - for all or part of the period 1970-2009. Results show that the measure, when compared to other five measures previously used in the literature, is correlated but non-redundant. The dataset may therefore be very useful for further research on the determinants of income shares.

Secondly, this study uses descriptive statistics to provide an account of the performance of factor shares over time and across countries. Contrary to the traditional assumption of stability of factor shares, our data present evidence of considerable variability: there seems to be a general reduction in the labour share around the world over the last few decades, in particular from the mid-1980s onwards. Moreover, the analysis shows that, as soon as we take self-employment into proper consideration, the relationship between factor shares and levels of economic development is not any more straightforward. In other words, it is not entirely true that poorer countries have lower labour shares, as suggested by previous literature.

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