Determinants of the (non-Housing) Labour Income Share in the EU. ESRI Working Paper 693 December 2020.

Kostarakos, Ilias (2020) Determinants of the (non-Housing) Labour Income Share in the EU. ESRI Working Paper 693 December 2020. [Working Paper]

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Abstract

The stability of the labour income share has been regarded as a key component of modern macroeconomic analysis. However, a number of recent studies have challenged this apparent stability, documenting a global decline of the labour share. This paper assesses the developments in the non-housing labour income share for the EU member-states during the 1995-2018 period. Our descriptive analysis shows that, for this sample, the labour share has remained relatively constant, exhibiting a slight increase toward the end of the sample period. Using recently developed panel time series estimators that can account for the heterogeneous impact of macroeconomic shocks, we empirically test the impact of capital deepening, the size of the government, globalization and financialization on the labour share. Our results indicate that both relative prices and government size appear to be significant determinants of the labour share, while globalization and financialization do not have a significant effect.

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