Labour income shares

The distribution of income between labour and capital has gained considerable attention in recent years in light of declining labour income shares in many countries. As labour income tends to play a larger role as a source of income among lower-income households than among higher-income households, a decline in the labour income share may also translate into widening income inequalities.

Key findings

Labour income shares have declined in most countries over the past 15 years, with the largest falls in Ireland, Poland and Portugal (about 10 percentage points); labour income shares in 2017 were particularly low in these economies, ranging from 36% in Ireland to 53% in Portugal. Labour income shares have also declined substantially in Australia, Hungary, Israel, Japan and the United States (about 5 percentage points).

In most countries, the decline has been more significant in manufacturing than in business services, increasing the gap between labour income shares in business services and those in manufacturing, reflecting the relatively capital-intensive nature of manufacturing activities.

Definition

The labour income share is calculated as the ratio of total labour compensation to GDP. The labour component of income earned by the self-employed is not separately identifiable. To estimate this, a simple assumption is used, namely that the self-employed and employees earn the same average hourly compensation for labour. Total labour compensation is therefore calculated as compensation of employees multiplied by the number of hours worked by all persons (employees and self-employed), divided by the hours worked by employees.

For Chile, Japan, Korea and the United States, as total hours worked by main ISIC Rev.4 economic activity are not available, the number of persons employed by sector is used, and so, Figure 6.4 necessarily assumes that the average labour compensation of the self-employed is the same as that of employees for these countries.

Business services excluding real estate, as shown below, include wholesale and retail trade, repair of motor vehicles and motorcycles; transportation and storage; accommodation and food services; information and communication services; and professional, scientific, administrative and support activities.

Note that the decline in labour income shares can be decomposed into a labour productivity component and a real labour compensation per hour component, when labour compensation costs are adjusted for inflation using the same price index as that used to deflate value added. In other words, declining labour income shares are consistent with productivity-wage decoupling.

Comparability

Total labour income represents the compensation received by both employees and self-employed for their labour. The compensation received by employees is readily available in the national accounts. However, total income received by the self-employed is recorded only as mixed income, with no distinction between the returns on their labour and the returns on their capital. Therefore, as described above, self-employed labour compensation is necessarily imputed. These imputations necessarily assume that either the average labour compensation per hour worked of the self-employed and employees or the average labour compensation per self-employed and per employee is the same, within a given sector. To what extent these assumptions (and in particular the latter) are true is likely to differ across countries.

References

OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/na-data-en.

OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.

OECD (2017), OECD Compendium of Productivity Indicators 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/pdtvy-2017-en.

Figure 6.3. Labour income shares in the total economy
Total compensation as a share of GDP, percentage
Figure 6.3. Labour income shares in the total economy

 StatLink http://dx.doi.org/10.1787/888933969181

Figure 6.4. Labour income shares in manufacturing and business services
Total compensation as a share of gross value added, percentage
Figure 6.4. Labour income shares in manufacturing and business services

 StatLink http://dx.doi.org/10.1787/888933969200

End of the section – Back to iLibrary publication page