Labor Income Share: Understanding the Drivers of the Global Decline

297 Pages·2020·10.068 MB·English

by  Saumik Paul

Labor Income
Share
Understanding the Drivers
of the Global Decline
saumik paul
Labor Income Share
Saumik Paul
Labor Income Share
Understanding the Drivers of the Global Decline
Saumik Paul
Newcastle University
London, UK
ISBN 978-981-15-6859-6 ISBN 978-981-15-6860-2 (eBook)
https://doi.org/10.1007/978-981-15-6860-2
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A
cknowledgments
This book is an outcome of roughly four years of work on labor income
share. It would not have been completed without the support and contri-
bution of many people. I sincerely thank Cristiano Perugini for introduc-
ing me to this topic. Cristiano was a visiting scholar at Hitotsubashi
University back in 2017. I had a series of idle chats in between intense
discussions with Cristiano and Kyoji Fukao that later helped me formulate
the idea of writing this book. In 2018, the Asian Development Bank
Institute hosted a conference on “Labor Income Share in Asia: Conceptual
Issues, Drivers, and Policy Considerations.” The proceedings of this con-
ference were published in 2019 as a book volume edited by Gary Fields
and me. Working with Gary during this time has helped to shape up many
parts of this book. I thank (in alphabetical order) Robert Chirinko, Mitali
Das, Marta Guerriero, Kyoji Fukao, Dibyendu Maiti, Debdullal Mallick,
Naoyuki Yoshino, and other conference participants at the Asian
Development Bank Institute for their feedback on my work.
Parts of Chaps. 4, 5, and 6 have been presented in various seminars and
conferences. I am grateful for the comments I received from Cristiano
Antonelli and Fabio Berton at the University of Turin; Davide Fiaschi and
Angela Parenti at the University of Pisa; Raffaele Miniaci and Maria Laura
Parisi at the University of Brescia; Silvia Marchesi and Tania Masi at the
University of Milano-Bicocca; Cristiano Perugini, Fabrizio Pompei, and
Francesco Venturini at the University of Perugia; Francesco Pastore at the
University of Campania Luigi Vanvitelli; Atanu Ghoshray, John Sessions,
and Wessel Vermeulen at Newcastle University; Praveen Kujal and Michela
Vecchi at Middlesex University; and other seminar participants at the
v
vi ACKNOWLEDGMENTS
University of Brescia, University of Pisa, University of Perugia, University
of Milano- Bicocca, University of Campania Luigi Vanvitelli, Middlesex
University, and Newcastle University. Chapters 3, 4, 5, and 7 involved a
large amount of data work. My sincere thanks (in alphabetical order) to
Hironobu Isaka, Saloni Lakhia, Abdelbari Lakhim, Yoko Oishi, Ken
Suzuki, and Liam Thomas for excellent research assistance. Liam has also
provided timely support in editing some of the chapters.
I thank my colleagues at Hitotsubashi University, the Asian Development
Bank Institute (Tokyo), and Newcastle University (UK) for their encour-
agement and support. My gratitude to Silvia Marchesi for hosting me at
the University of Milano-Bicocca in 2019, where the bulk of this book was
drafted. My sincere thanks go to Gabrielle Cimenilli and Asier Mariscal for
providing many helpful comments on my paper on “Capital-Skill
Complementarity and Labor Income Share,” and Tim Gindling and
Daniel Hammermesh for their useful comments on my paper titled
“Understanding the Global Decline in the Labor Income Share.”
I thank my father, Dilip Paul, for his encouragement throughout. My
wife Ronita and our daughters, Siya Pritha and Sayuri Radha, were happy
to see me writing a book. I thank my family for their continuous encour-
agement and for gracefully accepting the cyclic nature of life that “downs”
are as much a part of life as “ups” are, while I have been completing this
book project.
c
ontents
1 Introduction 1
References 6
2 Definition, Measurement, and Conceptual Issues 7
2.1 Definition of Labor Income Share 7
2.2 C onceptual Issues 11
2.2.1 Gross and Net Labor Income Share 11
2.2.2 Labor Income Share and Competition Decline 12
2.2.3 Labor Income Share and Information Technology 13
2.2.4 Labor Income and Intellectual Property Products 13
2.2.5 Evaluation of the Downward Trend in Labor
Income Share 14
2.3 S elf-Employment and Labor Income Share 15
2.3.1 A Conceptual Framework 17
2.3.2 Identification of Earnings Ratio (ξ) Across Sectors 17
2.3.3 Identification of Employment Ratio (φ) Across Sectors 21
2.4 Adjusted Versus Unadjusted LIS 26
References 29
3 Global Trends in Labor Income Share: Country Level 31
3.1 Data 31
3.2 Gross Domestic Product (GDP) and the Labor Income Share 36
3.3 Informal Sector and the Labor Income Share 42
vii
viii CONTENTS
3.4 Self-Employment and the Labor Income Share 45
3.5 Trade and the Labor Income Share 47
3.5.1 Agricultural Trade and the Labor Income Share 53
3.5.2 Non-agricultural Trade and the Labor Income Share 59
3.6 Agriculture and the Labor Income Share 66
References 70
4 Global Trends in Labor Income Share: Sector Level 73
4.1 Data 73
4.1.1 Data Sources and Country Coverage 73
4.1.2 Methodology 80
4.2 Descriptive Evidence 84
4.2.1 Cross-Country Comparison by Sectors 85
4.2.2 Country Case Studies 86
4.3 M anufacturing Versus Services 89
Appendix 1. Employment by Sex and Economic Activity
(Thousands) 95
Part 1: Countries Covered by the GGDC 10-sector Database 96
Part 2: Countries Covered by the Socio-Economic Account 106
Appendix 2. Notes on Earnings Data 117
Part 1: Countries Covered by the GGDC 10-sector Database 117
Part 2: Countries Covered by the Socio-Economic Account 129
Appendix 3. Ambiguous and Unambiguous Labor Income Share 140
Appendix 4. Aggregation Scheme 141
Appendix 5. Currency Adjustment for Revaluation and
Introduction of New Currency 142
References 143
5 G lobal Trends in Labor Income Share: Firm Level 145
5.1 D ata 145
5.1.1 Data Sources and Coverage 145
5.1.2 Alternative Definitions of Labor Income Share 152
5.2 D escriptive Evidence 154
5.2.1 Labor Income Share Trends Using Definition 1 1 56
5.2.2 Labor Income Share Trends Using Definition 2 1 60
5.2.3 Labor Income Share Trends Using Definition 3 1 63
5.3 C omparison of LIS1, LIS2, and LIS3 168
References 171
CONTENTS ix
6 The Economic Forces Behind Labor Income Share: Theory 173
6.1 Production Technology 174
6.2 The Role of Elasticity of Substitution Between Capital and
Labor (σ) 175
6.2.1 Changes in the Labor Income Share with
Homogeneous Labor Market 177
6.3 Changes in the Labor Income Share with Heterogeneous
Labor Market 179
6.3.1 Comparative Statics of LIS 181
6.3.2 Comparative Statics of LIS Using the Morishima
Elasticity of Substitution 182
References 187
7 The Economic Forces Behind Labor Income Share:
Empirics 189
7.1 Technological Change 189
7.1.1 SBTC, Capital-Augmenting, and Labor-
Augmenting Technological Change 190
7.1.2 Labor Income Share Dynamics with Variable
Elasticity of Substitution 195
7.2 Globalization 199
7.2.1 Trade Liberalization and Labor Income Share:
Country Level 199
7.2.2 Trade Liberalization and Labor Income Share:
Country Level 202
7.2.3 Trade Liberalization and Labor Income Share:
Sectoral Level 210
7.3 Structural Transformation 218
7.3.1 Sectoral Labor Income Share 218
7.3.2 Labor Share in Manufacturing and Service Sectors 220
7.3.3 Skill-Biased Structural Transformation and Labor
Income Share 223
7.4 Structural Transformation, Trade, and Labor Income
Share 224
7.4.1 Regression Outcomes 224
7.4.2 Case Study: Japan 231
7.5 Institutional Change 240
References 242
x CONTENTS
8 Potential Areas of Future Research 251
8.1 LIS and Personal Income Inequality 251
8.2 LIS and Skilled Emigration 253
8.3 LIS, Remittances, and Brain-Gain 256
8.4 LIS, Remittances, and Negative Labor Supply 258
8.5 LIS and Premature Deindustrialization 259
8.6 LIS and Firm Restructuring 260
8.7 LIS and Globalization at the Sectoral Level 262
References 263
9 Concluding Remarks 267
References 271