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Democracy and the Labor Share of Income: A Cross-Country Analysis

  • Marta GuerrieroEmail author
Chapter
Part of the ADB Institute Series on Development Economics book series (ADBISDE)

Abstract

Summary statistics on the labor share of income show that between-country variation is much greater than within-country variation: functional income distribution is determined by factors which change substantially across countries but are persistent over time. This article attempts to shed some light on the long-run and political economy determinants of the labor income share. We revisit and extend previous empirical research on democratic political institutions and the labor share using a dataset of 112 countries over the period 1970–2015. Our empirical analysis shows that democracy allows workers to appropriate a higher share of national income. The evidence is robust to different indices of democracy and different periods of time, and after performing instrumental variable estimation. These results are particularly relevant today, in light of the recent global decline in the labor income share and current crisis of democracy.

Keywords

Labor share Factor income distribution Democracy Political economy Institutions 

JEL classification

E25 P16 O15 

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Copyright information

© Asian Development Bank Institute 2019

Authors and Affiliations

  1. 1.Global Sustainable Development, University of WarwickCoventryUK

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