The relationship between labour share and unemployment: the role of wage-setting institutions

The paper is concerned with the relationship between labour share and unemployment in the major OECD countries. Special emphasis is put on examining whether the relationship has altered in a manner which can be interpreted as an indication of the weakened bargaining power of labour. The econometric analysis is based on the use of the theoretical framework which employs the notion of the wage curve as a central analytical tool. The investigation utilises cross-country panel data for twenty OECD countries over the period from 1972 to 2008 and statistical methods suitable for the examination of non-stationary panels. According to the results, the decline in the labour share, which is apparent in most major OECD countries, is highly likely due, at least partly, to the weakened bargaining power of labour. With a given level of unemployment, the labour share is nowadays lower than before.

Published: 1.11.2011
JEL: E24, E25, J52
ISBN: 978-952-209-095-9
ISSN: 1795-1801
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