Publicação
OECD labour share trends: factor efficiency vs. market distortions in a neoclassical framework
| Resumo: | We find that, for the vast majority of the 29 OECD countries, capital efficiency has declined, while labour efficiency has increased. Moreover, capital and labour exhibit a relatively high degree of complementarity. On average, countries with a larger relative decline in capital efficiency have also experienced a greater decline in the labour share. This pattern is consistent with the neoclassical theory of functional income distribution: if capital and labour are gross complements, a decline in the relative efficiency of capital reduces the demand for labour, thereby lowering equilibrium wages and the labour share. In some countries — including the United States, the United Kingdom and Australia — this mechanism can accurately account for much of the observed evolution in the labour share, while in others — including the three largest European economies (Germany, France and Italy) — market frictions and distortions affecting labour demand have played a more prominent role. Policies aimed at halting the decline in capital efficiency, or mitigating market frictions and distortions, can therefore enhance productivity and support wage growth. |
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| Autores principais: | Rio, Fernando del |
| Outros Autores: | Rebelo, Francisco |
| Assunto: | Capital deepening Capital efficiency Elasticity of capital-labour substitution Firm labour wedge Labour share Technical change |
| Ano: | 2025 |
| País: | Portugal |
| Tipo de documento: | artigo original |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Católica Portuguesa |
| Idioma: | inglês |
| Origem: | Veritati - Repositório Institucional da Universidade Católica Portuguesa |
| Resumo: | We find that, for the vast majority of the 29 OECD countries, capital efficiency has declined, while labour efficiency has increased. Moreover, capital and labour exhibit a relatively high degree of complementarity. On average, countries with a larger relative decline in capital efficiency have also experienced a greater decline in the labour share. This pattern is consistent with the neoclassical theory of functional income distribution: if capital and labour are gross complements, a decline in the relative efficiency of capital reduces the demand for labour, thereby lowering equilibrium wages and the labour share. In some countries — including the United States, the United Kingdom and Australia — this mechanism can accurately account for much of the observed evolution in the labour share, while in others — including the three largest European economies (Germany, France and Italy) — market frictions and distortions affecting labour demand have played a more prominent role. Policies aimed at halting the decline in capital efficiency, or mitigating market frictions and distortions, can therefore enhance productivity and support wage growth. |
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