Advertisement

Globalization, Structural Transformation, and the Labor Income Share

  • Ken SuzukiEmail author
  • Yoko Oishi
  • Saumik Paul
Chapter
Part of the ADB Institute Series on Development Economics book series (ADBISDE)

Abstract

This paper provides novel empirical evidence on the role of trade and structural transformation as potential drivers of the labor income share. Using cross-country data, both at the national and sectoral level, we find that trade openness is negatively correlated with the labor income share. The findings are robust across national and disaggregated levels, and across different model specifications. However, the relationship between the process of structural transformation and labor income share is at best mixed. We also find weak evidence that skill-biased structural transformation is likely to be positively correlated with the share of labor income predominantly in the services sectors.

Keywords

Labor income share Structural transformation Globalization 

JEL Classification

E24 E25 N10 O14 

References

  1. Acemoglu, D., & Autor, D. H. (2011). Skills, tasks and technologies: Implications for employment and earnings. In Orley Ashenfelter & David E. Card (Eds.), Handbook of labor economics (Vol. 4). Amsterdam: Elsevier.Google Scholar
  2. Alvarez–Cuadrado, F., Van Long, N., & Poschke, M. (2015). Capital–labor substitution, structural change and the labor income share. IZA Discussion Paper No. 8941.Google Scholar
  3. Arpaia, A., Perez, E., & Pichelmann, K. (2009). Understanding labour’s income share dynamics in Europe. European Economy Economics Paper No. 379, European commission.Google Scholar
  4. Buera, F. J., & Kaboski, J. P. (2012). The rise of the service economy. American Economic Review, 102(6), 2540–2569.CrossRefGoogle Scholar
  5. Buera, F. J., Kaboski, J. P., & Rogerson, R. (2015). Skill biased structural change. NBER Working Paper No. 21165.Google Scholar
  6. Charpe, M., Lee, S., Arias, D., & Bridji, S. (2014). Does income distribution matter for development? Trends in labour share of income and their economic impacts in developing countries. World of Work Report: ILO, Chap. 8.Google Scholar
  7. Dao, M. C., Das, M. M., Koczan, Z., & Lian, W. (2017). Why is labor receiving a smaller share of global income? Theory and empirical evidence. International Monetary Fund.Google Scholar
  8. de Serres, A., Scarpetta, S., & de la Maisonneuve, C. (2002, April). Sectoral shifts in Europe and the United states: How they affect aggregate labour shares and the properties of wage equations. OECD Economics Department Working Papers 326, OECD Publishing.Google Scholar
  9. de Vries, J. G., Timmer, M. P., & de Vries, K. (2013). Structural transformation in Africa: static gains, dynamic losses. Groningen Growth and Development Centre Research Memorandum GD-136.Google Scholar
  10. Decreuse, B., & Maarek, P. (2015). FDI and the labor share in developing countries: A theory and some evidence. Annals of Economics and Statistics/Annales d’Économie et de Statistique, 1(119/120), 289–319.Google Scholar
  11. Duarte, M., & Restuccia, D. (2010). the role of the structural transformation in aggregate productivity. Quarterly Journal of Economics, 125, 129–173.CrossRefGoogle Scholar
  12. Elsby, M. W., Hobijn, B., & Şahin, Ayşegül. (2013). The decline of the US labor share. Brookings Papers on Economic Activity, 2, 1–63.CrossRefGoogle Scholar
  13. European Commission. (2007). Chapter 5 of: Employment in Europe. The labour income share in the European Union.Google Scholar
  14. Fabricant, S. (1942). Employment in manufacturing, 1899–1939. New York: NBER.Google Scholar
  15. Feenstra, R. C., Inklaar, R., & Timmer, M. P. (2015). The next generation of the Penn World Table. American Economic Review, 105(10), 3150–3182.CrossRefGoogle Scholar
  16. Fukao, K., & Paul, S. (2017). The long-run dynamics of the labour share in Japan. Discussion Paper series A No.665, Institute of Economic Research, Hitotsubashi University.Google Scholar
  17. Fukao, K., & Perugini, C. (2018). The long-run dynamics of the labour share in Japan. Discussion Paper Series A No. 672. Institute of Economic Research Hitotsubashi University.Google Scholar
  18. Fukao, K., Hamagata, S., Inui, T., Ito, K., Ug Kwon, H., Makino, T., et al. (2007). Estimation procedures and TFP analysis of the JIP database 2006. RIETI Discussion Paper January 2007 07-E-003.Google Scholar
  19. Gollin, D. (2002). Getting income shares right. Journal of Political Economy, 110(2), 458–574.CrossRefGoogle Scholar
  20. Goldberg, P. K., & Pavcnik, N. (2007). Distributional effects of globalization in developing countries. Journal of Economic Literature, 45(1), 39–82.CrossRefGoogle Scholar
  21. Guerriero, M. (2012). The labour share of income around the world. Evidence from a Panel Dataset. Mimeo, University of Warwick.Google Scholar
  22. Guscina, A. (2006). Effects of globalization on labor’s share in national income. IMF Working Paper No. 294.CrossRefGoogle Scholar
  23. Harrison, A. (2002). Has globalization eroded labor’s share? Some cross-country evidence. University of California, Berkeley, and National Bureau of Economic Research. http://www.iadb.org/res/publications/pubfiles/pubS-FDI-9.pdf.
  24. Herrendorf, B., Rogerson, R., & Valentinyi, A. (2015). Growth and structural transformation. Handbook of economic growth (Vol. 2, pp. 855–941). Elsevier.Google Scholar
  25. Hicks, J. R. (1932). Theory of wages. London: Macmillan.Google Scholar
  26. Jaumotte, F., & Tytell, I. (2007). How has the globalization of labor affected the labor income share in advanced countries? IMF Working Paper 07/298, International Monetary Fund, Washington, DC.Google Scholar
  27. Jayadev, A. (2007). Capital account openness and the labour share of income. Cambridge Journal of Economics, Oxford University Press, 31(3), 423–443.Google Scholar
  28. Jorgenson, D. W., & Timmer, M. P. (2011). Structural change in advanced nations: A new set of stylised facts. Scandinavian Journal of Economics, 113(1), 1–29.CrossRefGoogle Scholar
  29. Karabarbounis, L., & Neiman, B. (2014). The global decline of the labor share. Quarterly Journal of Economics, 129(1), 61–103.CrossRefGoogle Scholar
  30. Krusell, P., Lee, E., Ohanian, J.-V. R.-R., & Violante, G. L. (2000). Capital-skill complementarity and inequality: a macroeconomic analysis. Econometrica, 68(5), 1029–1053.CrossRefGoogle Scholar
  31. Lawrence, R. Z. (2015). Recent declines in labor’s share in US income: A preliminary neoclassical account. NBER Working Paper No. 21296, National Bureau of Economic Research.Google Scholar
  32. Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.CrossRefGoogle Scholar
  33. Melitz, M. J., & Ottaviano, G. I. P. (2008). Market size, trade, and productivity. Review of Economic Studies, 75(1), 291–316.CrossRefGoogle Scholar
  34. Oishi, Y., & Paul, S. (2018). Sectoral labor income share dynamics: Cross-country evidence from a novel dataset. ADBI Working Paper 875. Tokyo: Asian Development Bank Institute. Retrieved https://www.adb.org/publications/sectoral-labor-income-share-dynamics.
  35. Piketty, T. (2014). Capital in the twenty-first century. Cambridge: Harvard University Press.CrossRefGoogle Scholar
  36. Piketty, T., & Zucman, G. (2014). Capital is back: Wealth–income ratios in rich countries 1700–2010. Quarterly Journal of Economics, 129(3), 1255–1310.CrossRefGoogle Scholar
  37. Rodriguez, F., & Jayadev, A. (2010). The declining labor share of income. Human Development Research Paper 2010/36, United Nations Development Programme, New York.Google Scholar
  38. Rodrik, D. (1997). Has globalization gone too far?. Washington: Institute of International Economics.CrossRefGoogle Scholar
  39. Sachs, J. D., & Warner, A. (1995). Economic reform and the process of global integration. Brookings Papers on Economic Activity, 1, 1–118.CrossRefGoogle Scholar
  40. Slaughter, M. J. (2001). International trade and labor-demand elasticities. Journal of International Economics, 54(1), 27–56.CrossRefGoogle Scholar
  41. Smitkova. (2018). Does openness matter for structural change? Mimeo University of Cambridge.Google Scholar
  42. Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., & de Vries, G. (2015). An illustrated user guide to the world input output database: The case of global automotive production. Review of International Economics, 23(3), 575–605.CrossRefGoogle Scholar
  43. Trapp, K. (2015). Measuring the labour income share of developing countries: Learning from social accounting matrices. UNU-WIDER Working Paper 41.Google Scholar
  44. UN. (2017). United nations system of national accounts. Retrieved http://data.un.org/Explorer.aspx?d=SNA.
  45. UNIDO. (2015). Industrial Statistics Database—2015 edition. Retrieved http://www.unido.org/resources/statistics/statistical-databases/indstat2-2015-edition.html.
  46. van Treeck, K. (2017). The labor income share of developing countries: Data review and analysis of international panel data. In Paper Presented at the 5th Conference of the Regulating for Decent Work Network at the International Labour Office Geneva. Switzerland. Retrieved http://www.rdw2015.org/uploads/submission/full_paper/657/vanTreeck_RDW2017.pdf.
  47. Wacziarg, R., & Welch, K. H. (2003) Trade liberalization and growth: New evidence. NBER Working Paper 10152.Google Scholar
  48. Wacziarg, R., & Welch, K. H. (2008). Trade liberalization and growth: New evidence. The World Bank Economic Review, 22(2), 187–231.CrossRefGoogle Scholar

Copyright information

© Asian Development Bank Institute 2019

Authors and Affiliations

  1. 1.Asian Development Bank InstituteTokyoJapan

Personalised recommendations