Why Have Wage Shares Fallen? An Analysis of the Determinants of Functional Income Distribution

Abstract

In the last quarter century dramatic changes in income distribution have taken place. This refers to the personal distribution of income as well as to the functional distribution of income. Distribution has become more polarized in most OECD countries (OECD 2008, 2011), with the very top income groups increasing their income shares substantially in the Anglo-Saxon countries, in particular in the United States (Atkinson et al. 2011). Wage shares have fallen in virtually all OECD countries, with decreases typically being more pronounced in continental European countries (and Japan) than in the Anglo-Saxon countries. In the advanced economies¹ the (adjusted) wage share has, on average, fallen from 73.4 in 1980 to 64.0 per cent in 2007 (Figure 2.1). The data for Germany are very similar (72.2 to 61.8); the decline is somewhat stronger in Japan (77.2 to 62.2) and a little weaker in the United States (70.0 to 64.9). Overall, real wage growth has clearly lagged behind productivity growth since around 1980. This constitutes a major historical change as wage shares had been stable or increasing in the post-war era.

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The author is grateful to Hubert Kohler for excellent research assistance and to Matthieu Charpe, Vince Daly, Marc Lavoie, Özlem Onaran, Simon Mohun and Antonella Stirati for helpful comments and suggestions. Earlier versions of this paper were presented at the Regulating for Decent Work conference, ILO, Geneva and at Kingston University. All mistakes are, however, the author’s.