OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Labour share developments over the past two decades

The role of public policies

Labour share developments over the past two decades have differed widely across OECD countries, with about half of them experiencing significant declines. This paper analyses the role of public policies in shaping labour share developments across countries. The results suggest that pro-competition product market reforms raise the labour share by reducing producer rents. Labour market reforms that strengthen the bargaining position of workers, such as tightening employment protection or raising minimum wages, may raise wages in the short term but risk triggering the substitution of capital for labour in the medium term. On average, across countries, such reforms are estimated to reduce the labour share. By contrast, promoting the re-employment of workers who lose their jobs through active labour market policies unambiguously raises the labour share.


Keywords: public policies, difference-in-differences estimation, labour share
JEL: J38: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Wages, Compensation, and Labor Costs: Public Policy; J58: Labor and Demographic Economics / Labor-Management Relations, Trade Unions, and Collective Bargaining / Labor-Management Relations, Trade Unions, and Collective Bargaining: Public Policy; D33: Microeconomics / Distribution / Factor Income Distribution
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