Good Times Bad Times: Postwar Labor’s Share of National
Income in 16 Capitalist Democracies
Tali Kristal
Stanford University
Working Paper 09-3
http://inequality.com
September, 2009
The Center for the Study of Poverty and Inequality is a program of the Institute for Research in the Social Sciences (IRiSS).
Support from the Elfenworks Foundation gratefully acknowledged.
Good Times Bad Times: Postwar Labor’s Share of National Income in 16 Capitalist Democracies
Abstract
This paper returns to a classic question of political economy – the zero-sum conflict between capital and
labor over the division of the national income pie. A detailed description of labor's share of national
income in sixteen industrialized democracies uncovers two long-term trends: an increase in labor’s share
in the aftermath of World War II, followed by a decrease since the early 1980s. In this paper I propose a
model of the relative bargaining power of capital versus labor towards an understanding of the dynamics
of labor’s share. Time-series cross-section equations predicting the short- and long-term determinants of
labor’s share support the vast majority of the theoretical arguments. The results, obtained for sixteen
developed countries over the period 1960-2000, suggest that the common trend of labor's share dynamics
is largely explained by indicators for inter-class struggle in the economic (i.e., unionization, strike
activity), political (labor-affiliated government, civilian spending), and global spheres (southern import,
foreign direct investments), as well as indirect indicators for the intra-class struggle among workers
(bargaining decentralization).
Good Times Bad Times: Postwar Labor’s Share of National Income in 16 Capitalist Democracies
Introduction
This paper fills a lacuna in inequality research by systematically analyzing the division of national income
amongst the two broadly dominant social classes that cooperate in its formation – capitalists and workers.
Although it is a classic question of political economy, the zero-sum distribution of national income
between labor’s compensation and capitalists’ profits (typically called "labor's share of national income")
was a relatively neglected topic until recently. One possible explanation for its “disappearance” from
public and scientific discourse is that labor's share of national income has widely been regarded by
economists as one of the great constants of economic development. That is rather misleading, as this
paper shows, for labor’s share has functioned as an indicator of the fluctuating position of workers in the
distributional struggle with capitalists over the course of the postwar period.
Recently, however, labor’s share has been making a comeback in economic research (Atkinson,
2009). Much of this revitalization has been driven by evidence from the last two decades which
controverts the usual argument that economic expansion will make most workers better off. The growth
of productivity has expanded total income, but in many countries average real wages and employment are
flat or even falling. Meanwhile, income growth has occurred mainly in capitalists' profits and at the very
top of the wage distribution, sharply increasing income inequality (Piketty and Saez, 2006; Wolff, 2003).
As a result, there has been a large and persistent reduction in labor’s share of national income in most
developed countries (Economist, 2006; Blanchard, 1997). Nevertheless, except for a few studies, little is
known about the scope of the decline in labor's share and its timing across countries. Furthermore, we
know relatively little about labor's share during the ascendancy of social-democratic projects in the
aftermath of World War II. The aim of this paper, therefore, is to fill a lacuna in inequality research by
systematically analyzing labor's share in sixteen industrialized democracies over the period 1960-2000.
There is a lack not only of studies documenting the distribution of national income between
workers' compensation and capitalists' profits, but also, with few important exceptions, of rigorous studies
that explore the dynamics of labor’s share. Recent studies suggest two alternative hypotheses for the
1
mechanism behinds the decline in labor's share. Computer and related information technologies are
assumed to have benefited capital productivity more than labor and, by implication, to have reduced
labor's share (Acemoglu, 2002; 2003; Blanchard, 1997). Alternatively, it has been hypothesized that the
decrease in the bargaining power of workers in the labor market is the main potential explanation for the
current decrease in labor’s share (Blanchard and Giavazzi, 2003). Although studies have shown that
workers' collective action in the labor market through unionization and strike activity did in fact increase
labor's share in the U.S. (Kalleberg, Wallace, and Raffalovich, 1984; Rubin, 1986; Wallace, Leicht and
Raffalovich, 1999) and in Israel (Kristal, 2008), this line of argument has not yet been tested in a longer
historical and wider geographical frame.
This paper suggests a broader conceptualization of the relative bargaining power of capital versus
labor towards explaining the long-term trends in labor’s share that involves a study of the inter-class and
intra-class distributional struggles in the economic, political and global spheres. In the economic and
political spheres, the relative bargaining power of capital versus labor is directly affected by labor
movements that mobilize workers’ collective strength and exercise that strength via policies they seek to
advance. Unionization, strike activity, strong labor-affiliated political parties that promote social
legislation, government social spending – these are all the feasible means at labor's disposal to increase its
share of income. Yet workers' success in extracting economic rewards from employers through these
means depends in part on their collective ability to reduce intra-class competition. An additional front in
the distributional struggle that is relevant to understanding labor’s share is more global. Economic
integration into international markets for goods, capital, and labor over the last two decades has probably
boosted capital's bargaining power relative to labor. Together, I refer to these inter-class and intra-class
distributional struggles as a class struggle. I apply this conceptualization of class struggle towards an
understanding of labor's share in sixteen capitalist democracies over the period 1960-2000.
The rest of the paper is organized as follows. In the next section, I describe the long-term
patterns of labor's share that emerge over the period 1960–2000. In Section Two, I discuss the
longstanding assumption of neoclassical economic theory that labor's share is constant and its recent
2
reevaluation. In Section Three, I introduce the conceptualization of the relative bargaining power of
capital versus labor towards explaining the dynamics of labor’s share. In Section Four, I describe the
sources of data and the method applied. In Section Five, I apply the framework developed in Section
Three to analyze changes in labor’s share in sixteen developed countries between 1960 and 2000. Section
Six contains the conclusions.
LABOR'S SHARE OF NATIONAL INCOME IN CAPITALIST DEMOCRACIES, 1960-2000
By way of introducing the dataset for the dependent variable, in Figure 1 I present plots of the trends in
labor's share for the sixteen capitalist democracies for which data are available. Labor’s share is
measured by labor's compensation (wages, salaries and fringe benefits) as a percentage of Gross Domestic
Product. According to national accounts definitions, GDP is the sum of labor's compensation and
capitalists’ profits (profits of firms and public-sector business enterprises and income from dividends,
interest, and rent).1 Thus, if labor’s share rises (declines) by a certain amount, capital's share must decline
(rise) by the same amount. Realized capital gains through the exercise of stock options and other assets,
which became key components of top executive remuneration in the 1990s (Piketty and Saez, 2006), are
generally not counted in the national income accounts and therefore are not part of either labor's
compensation or capitalists' profits.
<Figure 1>
It is prominently apparent that since the early 1980s labor’s share has decreased in the AngloSaxon countries, in Continental Europe and even in Scandinavian countries. On average, labor’s share
declined by almost 8 percentage points since the early 1980s, from 73 percent in 1980 to 65 percent in
2000. In fact, labor's share in 2000 was the smallest it had been for at least four decades. The scope and
timing of the decline in labor's share differ across countries, but the downward trend is clear. In Austria,
Belgium, Finland, Ireland, and Sweden – where labor's share was relatively high during the 1970s – its
1
Although from a firm's standpoint rent and interest payments would be seen as costs, for the economy as
a whole they are forms of income received by other members of the capitalist class, such as landlords and
bankers.
3
decline during the 1980s and 1990s was rapid and substantial. Labor's share declined in these countries
from 9 (Sweden) to 22 (Ireland) percentage points between 1980 and 2000. Countries such as France,
Germany, Italy, and Japan show a more moderate decrease in labor’s share, between 4 and 9 percentage
points since the early 1980s. In the U.S. and the UK the decline in labor’s share was more gradual and
amounted to only 2 percentage points. The increasing salaries of top managers and some professional
workers in these countries may explain this moderate decline in labor’s share.2
While labor's share in the UK has not changed much since the 1970s, during the first half of the
twentieth century labor's share in the UK showed a distinct upward trend, from 56 percent in 1913 to 72
percent in 1964 (Matthews, Feinstein, and Odling-Smee, 1982). In the U.S. too, labor's share of national
income increased by 5 percentage points from the end of World War II until the late 1960s (Krueger,
1999). Systematic data on labor's share for the period before 1960 in other developed countries are not
readily available, yet Figure 1 shows that the increase in labor’s share in the postwar period is not unique
to the UK and the U.S. During the 1960s and 1970s labor’s share increased in most countries. In
Denmark, Finland, the Netherlands, Norway,3 and Sweden, labor’s share increased by from 4 to 6
percentage points during the 1960s. During the 1970s, labor’s share increased also in Australia, France,
Germany, and Japan.
To explain what is behind the upward and downward trends in labor’s share, Table 1 presents
countries' annual growth in real earnings and fringe benefits per employee and labor productivity. The
rationale here is that growth in productivity increases national income; the question, though, is how much
of that growth translates into wages and fringe benefits. Contrary to the common economic assumption
that compensation tracks productivity, in all countries real earnings and fringe benefits have increased
slower than labor productivity during the last two decades. In France, for example, while productivity
increased by 2 percentage points on average during the 1980s, labor's compensation stagnated. Since
productivity growth expands total income, slow income growth for workers implies faster income growth
Between 2000 and 2005 labor’s share in the U.S. continued to decline by another 3 percentage points.
In Norway the trend in labor’s share is similar to that in other Scandinavian countries, though its level is
lower by 8 percentage points, most likely due to oil revenues.
2
3
4
for capital. Thus, labor’s share has declined over the last two decades, since real earnings and fringe
benefits did not track average productivity growth. The 1960s and the 1970s reveal some variance
between countries. In Sweden, to take one example, labor’ share increased due to a more rapid rise in
labor’s compensation relative to productivity. Since real earnings and fringe benefits increased in close
conjunction with productivity in the U.S., labor’s share remained relatively constant during the 1960s and
1970s.
<Table 1>
All in all, the general conclusion from the available evidence is that there is no real long-term
stability in labor's share of national income during the postwar period. Two common long-term trends
have been documented since the end of World War II in rich countries: an increase in labor’s share during
the 1960s and 1970s (or earlier), followed by a decrease since the early 1980s. Figure 2 presents box
plots of the yearly spread of labor's share in 16 developed countries from 1960 to 2000. The boxes for
each year mark the 25th and 75th percentiles of the distribution of labor’s share in the 16 countries. From
1960 to 1976, the median labor’s share increases by about 3 percentage points. A general decline in
labor’s share begins in the late 1970s, with the median share decreasing by about 6 percentage points.
Below I advance the argument that changes in capital's relative bargaining power versus labor's explain
the long-term patterns of labor's share that emerge over the period 1960–2000. But first, in the next
section I elaborate on the economic mainstream explanations for the dynamics of labor’s share.
<Figure 2>
FACTORS' SHARES: FACTORS OF PRODUCTION AND THEIR SHARES IN PRODUCT
The extensive public and scientific discourse on the causes of rising inequality of earnings in developed
countries may conceal the fact that interest in income distribution was marginalized in economic research
until the early 1980s (Atkinson, 1997; Gottschalk and Smeeding, 1997). With a few important
exceptions, sociology until recently has also been “strangely and remarkably silent” (Morris and Western,
1999, p. 624) regarding earnings inequality. This lack of interest reflected the view that earnings
5
inequality in the U.S. showed little change between the end of the 1940s and the mid-1970s. Like
earnings inequality, the peripheral nature of national income distribution between capital and labor may
be an empirical outcome of what has long been regarded as a "stylized fact" of economic growth – the
constancy of labor's share of national income (Kaldor, 1961).4 Keynes, for example, wrote that “the
stability [italics mine] of the proportion of the national dividend [income] accruing to labor…is one of the
most surprising, yet best-established, facts in the whole range of economic statistics” ([1936]1973: 408409). The constancy of labor’s share is derived by adopting a standard neoclassical Cobb-Douglas
aggregate production function which assumes that labor and capital are paid their marginal productivity,
that labor and capital are neither substitutes nor complements factors in the production process, and that
the factors' shares are determined entirely by the production technology which increases the marginal
product of capital and labor by the same amount.
Yet recently the longtime “stylized fact” regarding the constancy of labor’s share turned out to be
not true for many developed countries. Two alternative explanations for the decline in labor’s share since
the early 1980s have been advanced; both of them relax the Cobb-Douglas production function
assumptions. The first line of explanation suggests that the increase in wages in the late 1960s and early
1970s led to capital-biased technological change (hereafter: CBTC), which has benefited capital
productivity more than labor (Acemoglu, 2002; 2003; Blanchard, 1997). That is, the increase in wages
not only led firms, over time, to move to technologies using less labor and more capital, but may have
prompted them to develop new labor-saving technologies to avoid high labor costs. Once this technical
change takes place, firms gradually reduce their labor demand.5 According to the CBTC hypothesis, we
4
The distribution of national income between the factors of production was a subject of central
importance to classical economists. Ricardo declared on more than one occasion that national income
distribution is the "principal problem" in economics, not only in his preface to On the Principles of
Political Economy and Taxation (1821), but also in a letter to Malthus in October 1820: “Political
economy you think is an enquiry into the nature and causes of wealth – I think it should rather be called
an enquiry into the laws which determine the division of the produce of industry amongst the classes who
concur in its formation” (vol. 8, p. 278).
5
In contrast to the Cobb-Douglas production function, the CBTC hypothesis does not assume that
technical change is neutral. Moreover, capital and labor are assumed to complement each other in the
production process.
6
should expect that the rise in productivity since the late 1970s is negatively associated with labor's share,
while during earlier years productivity growth was positively associated with labor's share. Supporting
only the first part of this hypothesis, Bentolila and Saint-Paul (2003) find a negative effect for
productivity on labor's share in industry data for 12 OECD countries over the period 1972-93. While it
seems likely that technological changes had some effect on labor’s share, the CBTC hypothesis by itself
cannot explain the current decline in labor’s share. The main problem for the CBTC hypothesis is that
computer and related information technologies have advanced continually since the early 1980s, despite
wage moderation during the 1980s and 1990s. CBTC also fails to explain why countries that are
relatively similar from a technological point of view differ in the scope of the decline.
As an alternative to the CBTC hypothesis, Blanchard and Giavazzi (2003) argue that the
explanation for the decline in labor’s share lies in workers’ bargaining power. Based on the assumption
that wages not only reflect marginal productivity, but are also determined by bargaining in the labor
market, their model implies that, starting in the mid-1980s, a decrease in the bargaining power of labor
led to a reduction in the real wage at a given level of employment, and, by implication, a reduction in
labor's share. While the bargaining hypothesis seems to fit well with the trend of decline in both
unionization and labor's share, this relation has not yet been tested empirically. Moreover, by focusing
solely on workers’ bargaining in the labor market, Blanchard and Giavazzi (2003) overlook much of the
historical sequence of labor movements in developed countries such as labor-affiliated political parties
and the expansion of the welfare state. This paper, therefore, suggests a broader conceptualization of the
relative bargaining power of capital versus labor towards explaining labor’s share and empirically tests it
for 16 capitalist democracies over the period 1960-2000.
DISTRIBUTIONAL STRUGGLES AND LABOR'S SHARE OF NATIONAL INCOME
In the following pages, I develop the conceptualization towards an understanding of the dynamics of
labor’s share. Figure 3 presents the study’s hypotheses, which will be tested on sixteen countries over the
period 1960-2000. Based on the theoretical discussion below, two basic arguments underlie my analysis.
7
First, labor’s share is a function of shifts in macroeconomic variables and class struggle indicators on the
political, economic and global fronts. Second, the effects of labor organizations on labor’s share depend
on the intensity of the intra-class competition, and in particular on the level of fragmentation within
organized labor. While indicators for inter-class and intra-class struggles are expected to explain the
upward and downward long-term trends in labor's share over the postwar period, the business cycle is
likely to explain its short-term fluctuations.
<Figure 3>
Macroeconomic Business Cycle
That the business cycle shapes the relative bargaining power of capital versus labor and therefore affects
labor’s share is an argument put forward mostly by Marxist economists. Specifically, labor’s share is
expected to be inversely related to rapid economic growth, high rates of unemployment, and rising prices.
Labor's share should decline throughout economic expansions because rises in wage rates are limited (by
institutional constraints such as fixed-term wage agreements), while innovation and, therefore,
productivity grow more rapidly than wages (Hahnel and Sherman, 1982; Sherman, 1979; Weisskopf,
1979). According to this argument, the negative relation between productivity growth and labor's share is
due to institutional constraints in the labor market and not necessarily an outcome of higher capital
productivity, as argued by the CBTC hypothesis. Unemployment should reduce labor's share basically by
decreasing labor's bargaining power (Broddy and Crotty, 1975; Glyn and Sutcliffe, 1972; see also Korpi,
2002), while rising prices lower labor’s share since labor’s compensation normally lags behind inflation
more than profits (Munley, 1981). Earlier studies have found that labor’s share in the US indeed declined
throughout periods of economic expansion and job losses, while inflation has yielded conflicting results
(Raffalovich, Leicht and Wallace, 1992; Wallace et al., 1999).
8
Inter-class Struggle on the Economic Front
While sociologists in general have been silent on the current redistribution of income from labor to
capital, a few sociological studies show that labor has a feasible capacity to enhance its share of income
through two forms of collective action – union organization and strike activity (Kalleberg et al., 1984;
Rubin, 1986; Wallace et al., 1999). The rationale for the positive effect of union organization on labor’s
share is that union membership is a prime measure of the power base of the working class and an
indicator of workers’ capacity for collective action. Strike activity constitutes the primary form of
workers’ collective struggle for their immediate economic interests. As such, strike is labor’s most potent
weapon in resolving disputes over compensation matters and therefore should increase labor’s share.
Wallace et al. (1999) find that unionization and strike activity increased labor's share in the postwar U.S.,
at least until the early 1980s, by increasing labor's compensation and decreasing firms’ profits.
Based on this conventional wisdom that there is an inverse relationship between workers’ power
in the economic sphere and capitalists’ profits, changes in unionization and strike activity may explain the
upward trend in labor’s share during the 1960s and 1970s and its downward trend since the early 1980s.
Although national labor movements have traced vastly different trajectories in the postwar period, in the
two decades after World War II labor commonly held a strong position relative to capital. In the capitalist
democracies of Europe, North America and the Pacific region, unions organized between a third and twothirds of all workers (Western, 1997). Labor’s robust position was characterized by militant demands for
better wages and working conditions (Shalev, 1992). However, labor organizations lost power in the
1980s in nearly all industrial economies, and the decline continued during the 1990s. Unionization rates
generally were falling (Ebbinghaus and Visser, 1999; Western, 1997). Due to labor's crumbling
organizational base, the power of the strike to boost average employee wages was severely weakened
(Rosenfeld, 2006), and labor militancy has fallen sharply over the last two decades in most countries
(Piazza, 2005).
Yet this conventional wisdom, positing an inverse relationship between unionization and
capitalists’ profits, is challenged by evidence of wage restraint (Layard, 1991) and high rates of
9
productivity (Hicks and Kenworthy, 1998) in countries with high levels of unionization. It may therefore
be the case that a strong labor movement is not only good for workers, but even better for employers.
Indeed, despite the conflict of interests between labor and capital, the political arena has facilitated a
specific historical phenomenon which Przeworski (1985) defines as "class compromise" in democratic
capitalism. Eric Olin Wright (2000) extended and reformulated Przeworski’s core idea by arguing that
labor union power adversely affects capitalists’ material interests only up to a certain point. Once
workers' organizational power crosses a certain threshold, labor unions begin to have a positive effect on
capitalists’ profits, mainly by imposing wage restraint. Applying Wright's argument to the understanding
of labor's share, I expect to find an inverted U-shaped relationship between labor unions and labor's share.
Thus, high levels of unionization may have a zero or even negative effect on labor’s share if unions
promote economic growth faster than real wages and fringe benefits.
Inter-class Struggle on the Political Front
Previous research, mainly on the U.S. economy, has examined how the relative power of labor in the
economic sphere generates distributional inequalities. These studies, however, have looked at the zerosum conflict between capital and labor over the division of the national income pie as an economic arena,
assuming it can be understood outside politics. It may be assumed, however, that labor's relative power
vis-à-vis capital is higher in the political than in the economic sphere. Thus, wage-earners who are
disadvantaged in the economic sphere where they are subordinated to their employers can combine to
take collective action in the political sphere, where their power position is relatively better. Neo-Marxist
power resources theory (Esping-Andersen, 1985; Hicks, 1999; Korpi, 1983; Stephens, 1979) argues that
workers' organization in social-democratic parties, often with the support of unions and allied parties of
the left, results in a shift in the relative bargaining power of capital versus labor towards a strengthening
of labor. The outcome of this shift, I argue, should be a bigger slice for labor out of the national income
pie.
10
Political parties affiliated with the working class should support a redistribution of the national
income pie in favor of labor. Labor-affiliated political parties are an indication of the political power base
of the working class. Labor governments' promotion of legislation on issues such as unemployment
insurance, minimum wage, and progressive taxation, as well as their favorable political climate towards
organized labor, can thus be seen as an attempt to reduce inequalities inherent in employment relations.
While there is extensive research on the effects of labor-affiliated political parties on earnings inequality
among workers (e.g., Moller, Bradley, Huber, Nielsen, and Stephens, 2003; Rueda and Pontusson, 1999),
not much is known about the effects of labor-affiliated political parties on income inequality between
labor and capital. In the U.S. context, to take one important example, changes in political affiliation
during the Reagan administration arguably had a key influence on the relative bargaining power of capital
versus labor. The event that stands out as symbolizing Republican opposition to organized labor occurred
in the summer of 1981, when striking air-traffic controllers were dismissed by President Reagan and nonunion employees were hired as replacements. Thus, according to the study's hypothesis, the shift from
Democratic to Republican government decreased labor's share in the U.S.
On the political front, to the extent that labor-affiliated political parties achieve control over the
government, they use the government machinery to redistribute national income in favor of labor. The
possibility of redistribution through state budgetary allocations, however, has been questioned.
Specifically, the neo-Marxist perspective views state budgetary practices as an inherently divided process.
On one hand, the state is responsible for fostering and preserving societal wellbeing; hence, state fiscal
policies must support working-class demands (Devine, 1985; Griffin, Devine and Wallace, 1983;
Skocpol, 1980). On the other hand, the state must preserve and ensure the viability of the market and
support private accumulation; hence, state fiscal policies must also support capital's demands (Devine,
1985; Griffin, Devine and Wallace, 1982; 1983; O'Connor, 1973). As I elaborate below, the divided
process of fiscal policies can be traced in the two major areas of government expenditure – civilian and
military. While the effect of civilian spending on labor's share is expected to be positive, the effect of
military spending is expected to be negative.
11
Redistribution through the welfare state constitutes one of the necessary payoffs to the working
class in the political sphere. In the U.S., Devine (1983) finds that the level of social spending, which
includes public social services and transfer payments, had a positive effect on the labor-capital income
ratio. Yet the two components of social spending – public social services and transfer payments – do not
necessarily affect labor’s share in a similar way. The free or subsidized provision of public services and
goods, such as education and healthcare, amplifies the size of the public sector. Public employment
should increase labor’s share, since public-sector workers earn more on average than do workers in the
private sector and most earnings advantages are concentrated at the low end of the earnings distribution
(for a review, see Bender, 1998). Although social transfer payments, which are particularly generous in
social- and Christian–democratic regimes, redistribute income among workers (Moller et al., 2003) they
are much less likely to redistribute income from capital to labor since they have only a minor effect on
workers’ employment and wages.
Military expenditures, as opposed to civilian expenditures, should decrease labor's share of
national income by increasing employer's profits. That is because: (1) a convenient rationalization of the
need for massive armaments expenditures exists, (2) armaments are consumed rapidly, and (3) military
production is highly profitable. According to this rationale, the growing use of military spending – what
was later labeled "military Keynesianism" – in the postwar U.S. served as a tool to prevent declines in
aggregate output and employment. Griffin, Devine and Wallace (1982) took this argument a step further,
suggesting that military spending was used as a fiscal tool in the postwar U.S. to regulate the rate of
profit, particularly monopoly profits, and not directly to offset aggregate economic stagnation. From
these general arguments, which hold that military expenditures benefit employers’ profits, I derive my
argument regarding the negative impact of military spending on labor’s share.
The explanation for the long-term trends in labor's share may also lie in the political sphere. In
the aftermath of World War II, the formerly rather weak leftist political parties greatly increased their
political strength, as did their political allies in the trade unions. For the first time in history, leftist
political parties had come to be either government parties or major opposition parties in most of the
12
capitalist democracies (Piven, 1991). In the 1980s, though, the social-democratic model came under
severe attack in France, Germany, Netherlands, Belgium and Britain, and by the 1990s it was being
challenged even in the Nordic countries. Labor parties lost power (Piven, 1991; Pontusson, 1995), and
those that retained power were unable to support their traditional working-class constituencies through
social welfare and full employment policy (Huber and Stephens, 2001; Korpi and Palme, 2003).
Intra-class Struggle among the Working Class
The third front that is relevant to a better understanding of labor's share is the intra-class struggle among
workers over the definition and organization of their common interests. Ever since Karl Marx, theory has
suggested that workers' success in extracting economic rewards from employers depends, in part, on their
collective ability to reduce intra-class competition ([1847]1963). In applying Marx's long-standing
argument, workers' intra-class competition is best conceptualized in terms of the level at which collective
bargaining is conducted. In general, the continuum ranges from a highly centralized corporatist system,
where wage agreements cover the entire or almost the entire workforce, to a highly decentralized system
where numerous collective agreements are signed by many local unions, covering workers in specific
firms or occupations within firms. In a centralized system, wage agreements are expected to promote the
wider interests of all workers and thus overcome internal competition among them. By contrast, wage
agreements that are signed by narrowly based unions boost antagonistic interests among workers. A
process of decentralization, therefore, implies an intensification of workers’ intra-class competition.
A process of decentralization has likely occurred throughout the 1980s and 1990s, even where
formal measures of centralized bargaining show little change. The extent of bargaining decentralization
is disputed by comparative researchers, mainly because they vary on how to conceptualize and measure it,
which generates some notable differences in assessments of trends over time (Kenworthy, 2001). Still,
various case studies find that firm-level bargaining has flourished alongside centralized wage talks across
European countries (Freeman and Gibbons, 1994; Katz, 1993). Even in Sweden's centralized bargaining
system, to take an important example, in the early 1980s the Swedish metalworkers and Volvo withdrew
13
from centralized negotiations, and bargaining thereafter lurched toward the sector and firm levels. The
growth of firm-level bargaining during the 1980s implies that the intra-class competition among
organized workers has intensified. Due to this process, the positive effect of labor organizations on
labor’s share is likely to have declined in the last two decades.
Inter-class Struggle on the Global Front
Advanced economies have become increasingly integrated into international markets for goods, capital,
and labor during the last three decades. This “globalization”, and in particular the entry of less-developed
countries into the world market, should have undermined the position of labor at the production process
level and redistributed income from labor to capital in developed countries. Yet this general argument
has not been systematically tested yet.
The first way in which globalization may have raised profits relative to wages is by increasing
manufactured imports from developing countries, such as China, India and the Eastern bloc countries, to
developed countries ("Southern imports"). Importing of manufactured goods from less-developed
countries has reduced firms’ costs and places workers in industrialized countries in direct competition
with lower-paid workers in developing countries. This competition has curbed the bargaining power of
workers in rich countries. As a result, southern imports bring down the wages of the least skilled workers
in developed countries and increase unemployment (Wood, 1994). Hence, an increase in imports from
developing countries is expected to decrease labor’s share in developed countries. Guscina (2006),
however, finds that the share of trade with developing countries (exports to developing countries plus
imports from developing countries as a percentage of total trade) did not affect labor's share in rich
countries over the period 1985-2000. Yet the argument concerning the negative impact of trade with lessdeveloped countries on labor’s share relates only to imports from developing countries, not exports to
them.
A second feature of globalization is the rising flow of migrant workers from low-income to
richer countries. The influx of low-skilled migrants is expected to depress wages by threatening or
14
actually displacing native workers. Most empirical studies have found a negative effect of immigration
on the wages and employment of native-born workers, although this effect is relatively small (Ghatak,
Levine, and Price, 1996). Therefore, a greater rate of immigration is expected to decrease labor’s share.
Indeed, an IMF study (2007) reports that immigration reduced the share of income accruing to labor in
developed countries between 1982 and 2002.
The final component of the globalization triad is increasing capital mobility, which means more
outflow and inflow of Foreign Direct Investments (FDI), especially into multinational firms. Direct
investments in multinational firms are supposed to weaken labor's bargaining position and exert a
downward pressure on the wages of (typically) organized, middle-income workers, although they
contribute also to an increase in the wages of upper-income workers. Yet the negative effect of direct
investments on aggregate wages is supposed to be higher than their positive effect. Indeed, Brady and
Wallace (2000) find that the percentage of workers employed in foreign-affiliated firms in the US had a
negative effect on labor's share during 1978-1996.
On the basis of the above arguments, it is plausible that globalization has affected the relative
bargaining power of capital versus labor by undermining the position of labor at the production process
level and magnifying the power of capitalists. The current decrease in labor's share, therefore, may in part
be an outcome of the integration of countries into international markets, which has caused an increase in
imports from developing countries, cheap immigrant labor, and capital mobility.
To summarize the theoretical model, I explain the dynamics of labor's share by macroeconomic
factors and indicators for inter-class and intra-class struggles. Class struggle indicators increase/decrease
labor's share due to their unequal effects on the returns to capital relative to the returns to labor. In
particular, unionization and strike activity should increase labor's share by increasing labor income and
decreasing capital income (Wallace et al., 1999). A growing presence of labor-affiliated political parties
in the government and increased civilian spending should increase labor's share primarily by increasing
employment, wages and fringe benefits without significant increase in capital income. By contrast, the
main driving force in the effect of military spending on income distribution is related to the heavily
15
capital-intensive aspect of military spending, which increases the returns to capital at a higher rate than
the returns to labor. Finally, globalization decreases labor's share most likely by exerting a downward
pressure on wages and employment.
DATA
I use time-series cross-sectional (TSCS) data, i.e., longitudinal observations on each variable for each
country, to test the theoretical model. Hence, the data allow yearly observations for each country
throughout almost the entire 40-year period (1960-2000). The sample includes sixteen industrialized
democracies (Australia, Austria, Belgium, Canada, Denmark, Finland, France, (West) Germany, Ireland,
Italy, Japan, the Netherlands, Norway, Sweden, the UK, and the U.S.) for which data are available.6
Table 2 shows definitions, data sources and averages by country of the variables used in the analyses.
<Table 2>
The dependent variable is labor’s share of national income. I follow previous studies and
measure Labor’s share as the percentage of Gross Domestic Product (minus net indirect taxes) that goes
to compensate labor. Recent studies argue that a measure of labor’s share that includes only employees’
compensation on the labor side is biased over time since it does not take into account the move from selfemployment to wage and salary employment (Gollin, 2002; Krueger, 1999). Thus, in this study the
numerator of labor’s share is labor income (of employees and self-employed), including wages, salaries
and fringe benefits, and GDP is the denominator. The "labor portion" of self-employed income is
estimated by multiplying the number of work-hours of non-employees by the average wage per hour in
the industry in which they were employed.
One likely criticism of analyzing the distribution of national product between the aggregate
categories of capital and labor is that, by doing so, we are ignoring the likelihood of "contradictory
locations within class relations" (Wright, 1985), i.e., workers whose interests may be more aligned with
6
Since data on self-employed in New-Zealand and Switzerland are not available for the entire period, we
cannot calculate labor’s share for these countries.
16
capitalists than with workers. Indeed, labor's total compensation includes also top managers that extract
wages, salaries and fringe benefits, while simultaneously drawing capital income.7 Nonetheless, the
inclusion of top managers with the working class does not necessarily bias the analysis; if anything, it
puts my argument to a stronger test. Given the proliferation of such very high-earning salaried
professionals, it is a wonder that labor's share is not at a record high. Based on recent estimations of the
share of total income held by the richest groups (Atkinson, Piketty, and Saez, 2007; 2009), I calculate a
modified measure of workers’ share for a restricted sample of 13 countries.8 I subtract an approximation
of top one percent earners' income from aggregate labor’s compensation and divide that amount by
national income. As expected, in all countries workers’ share is lower than labor’s share by about 3-6
percentage points. In a few countries there was also a more rapid decline in workers’ share during the
1990s relative to the decline in labor’s share. In particular, given the substantial increase in the share of
the top income bracket over the last 25 years in the UK and the U.S., the relatively moderate decline of 2
percentage points in labor’s share in these countries is much steeper – 6-7 percentage points – if aggregate
labor’s compensation is taken not to include the very high salaries of top earners.
Union density is measured as the percentage of salaried workers that are union members
(excluding the self-employed and retired union members). The data for the period 1960-2000 are
collected from several sources (Ebbinghaus and Visser, 2000; Golden, Wallerstein and Lange, 2006;
Visser, 2006). Strike data provide a wealth of measures, such as number of striking workers, frequency
of strikes, and their duration, each indicative of a distinct aspect of strike activity. For theoretical and
pragmatic reasons, the principal measure in this analysis is strike volume, which is calculated as the
number of days lost to strikes and lockouts relative to the total number of salaried workers in each year.
This measure represents the total economic damage inflicted upon employers due to strikes, as well as the
economic costs incurred by workers who engage in strikes. To ascertain that the findings are not singular
7
According to the national accounts classification, workers whose income is derived from a mixture of
earnings, fringe benefits and profit-linked mechanisms (such as dividends) would have their income split
proportionately between the labor and capital components.
8
Data are not available for Austria (1960-2000), Belgium (1960-2000), Denmark (1960-2000), Finland
(1993-2000), Germany (1999-2000), Ireland (1960-1974), Italy (1960-1973), the Netherlands (2000).
17
to this measure, I also examine the rate of striking workers (expresses the prevalence of workers who
participate in strikes among all salaried workers), which relates specifically to the workers’ level of
militancy.9
For the class struggle indicators on the political front, I draw directly on the data collected and
coded by Huber, Ragin, Stephens, Brady, and Beckfield (2004). The best indicator available for labor
government is leftist cabinet, defined as leftist seats as a percentage of seats held by all government
parties. According to this definition, leftist cabinet is scored 100 for each year when the left is in
government alone, and as a fraction of the left’s seats in parliament out of all governing parties’ seats
when the left is in a coalition government. I have treated the Democratic Party in the United States and
the Liberal Party in Canada as leftist parties, given their pro-labor orientations in their specific national
contexts. Government civilian and military spending are calculated as a percentage of GDP. Civilian
non-transfer government expenditure includes expenditures on direct social services like education and
healthcare and is an approximation of the size of the public sector. Social security spending is not part of
this value. Military spending includes both domestic consumption and defense imports.
Southern import is measured as manufactured imports from non-OECD countries as a percentage
of GDP. Manufactured imports are defined as Standard International Trade Classification (SITC) groups
5, 6, 7 and 8. Data for the period 1962-2000 are drawn from the United Nations Commodity Trade
Statistics Database. Net migration rate is calculated by the number of immigrants minus the number of
emigrants as a percentage of the total population. Data for this measure are published in the OECD
Population and Vital Statistics dataset. This measure aims to capture the effect of the increased
movement of migrant workers from low-income to richer countries. For international capital mobility, I
use foreign direct investment inflows per capita (log). Data are drawn from the IMF’s Balance of
Payments Statistics Yearbook (various years).
9
Comprehensive data on strikes in the U.S. for the entire period 1960-1980 are not available. Under
Reagan’s administration, the Bureau of Labor Statistics (BLS) ceased collecting data on strikes involving
less than 1,000 workers and lasting less than a full day or shift. We control for this change in strike
definition in the U.S. since 1980 by a dummy variable.
18
Regarding macroeconomic variables, Productivity is measured as real GDP per worker in 2000
international dollars (data for Germany before 1970 are missing). Unemployment is measured as the
percentage of civilian unemployed in each year. Inflation is measured as the annual percent change in the
consumer price index (data for Denmark before 1967 are missing). Comparable data for productivity,
unemployment, and inflation for the 16 countries are drawn from Penn World Tables, OECD Labor Force
Statistics, and OECD.Stat.
METHOD
For theoretical and methodological reasons, I analyze the determinants of labor's share in time-series
cross-sections dynamic specification (a lagged dependent variable is included among the predictors) by
fixed effects estimators (Beck, 2001; Halaby, 2004; Kittel and Winner, 2005). Fixed effects estimators,
which exploit within-country variation as a means of purging unit heterogeneity, make it possible to
obtain unbiased and consistent estimates of parameters when country effects are arbitrarily correlated
with measured explanatory variables (Halaby, 2004). By applying fixed-effects estimators, this study
explains the variation in labor’s share over time within countries, but hardly explains differences in levels
between countries.
To analyze the differing long- and short-term contributions to labor’s share, I use single-equation
error correction models (ECMs). Recent research has demonstrated the utility of ECMs, which include
separate parameters for contemporaneous effects and long-term equilibrium effects, in analyzing dynamic
processes (De Boef and Keele, 2008). Although ECMs are not limited to analyses in which cointegration
is a problem, it may nevertheless be noted that such models also offer methodological advantages when,
as in the present instance, the possibility of unit root problems cannot be rejected.10 I therefore specify
the TSCS variant of the single-equation error correction model for the dynamic relationships:
labor ' s _ sharei ,t   0  1X i ,t   2 labor ' s _ sharei ,t 1   3 X i ,t 1    i ,t
10
Given the unbalanced nature of the panels utilized in this analysis, the data were tested by applying the
augmented Dickey-Fuller test to individual country time series.
19
In this model, current changes in labor's share are a function of both the short-term changes in the
independent variables and their long-term levels. Specifically,  1 captures any short-term effects on
labor's share, while the long-term effects are captured by  3 . The long-term effect occurs at a rate
dictated by the value of  2 that captures the rate of return to equilibrium. I estimate this model by OLS
with panel-corrected standard errors (Beck and Katz, 1995), which mitigate within-group
heteroskedasticity and contemporaneous correlation of errors. The estimations have also been adjusted
for panel-specific patterns of autocorrelation. I use country dummy variables and time dummies to
control for country-specific and time-specific fixed effects.
The equilibrium relationship in ECMs reflects the theory that the relative bargaining power of
capital versus labor and labor's share tend to move together in the long run. Substantively, I model
change in the share of labor's income as a function of its past level, cyclical variations in the exogenous
variables, and long-term trajectories that reflect structural changes in the balance of power between
classes. The expectation from theory is that macroeconomic variables should have statistically significant
short-term effects, while class struggle indicators should have statistically significant long-term effects.
In the practical context of the statistical model, I expect that the first differences of the macroeconomic
variables should be statistically significant, while the lagged values of class struggle indicators should be
significant. I also allow that class struggle indicators may perhaps have a short-term effect as well, while
macroeconomic variables may have a long-term effect. To that end, I include both lagged and differenced
terms for each.
RESULTS
Figure 4 shows the 5-year mean changes in labor's share and some of the independent variables for the 16
countries during the years 1965-2000. The graphs illustrate quite clearly the nature of the relationship
between class struggle indicators and labor's share. There is a sharp contrast between the years up to the
late 1970s and since then in the 5-year mean changes in unionization, strike activity, leftist cabinet, and
20
civilian spending. Whereas in the first period the changes are positive for most years, during the second
period they are mostly negative. There is one exception regarding positive changes in average leftist
cabinet during the 1990s, driven by the coming to power of labor-affiliated governments in Australia,
Canada, and the U.S. This variation reveals that the upward and downward trends in labor's share have
generally occurred concurrently with the common pattern of a rise and decline of labor movements across
developed countries. While the 1970s can be described as a period of “profit squeeze” due to rising
wages secured to labor by strong labor movements, the 1980s and 1990s might be described as a period of
“labor squeeze”, resulting from a wearing down of the labor movements in most developed countries.
The integration of countries into international markets during the 1980s and 1990s, which has caused an
increase in imports from developing countries, cheap immigrant labor and capital mobility, has most
likely further squeezed labor in developed countries.
<Figure 4>
Using the methodology described in the preceding section, I estimate a basic error correction
model with country- and time-fixed effects in column 1 of Table 3. I model change in labor's share as a
function of short-term changes and long-term levels of macroeconomic factors (productivity,
unemployment, inflation), class struggle indicators on the economic front (union density, union density2,
strike volume), on the political front (leftist cabinet, civilian spending, military spending), and on the
global front (southern imports, FDI, migration). Using the results from the full model, I removed several
variables that were not statistically significant under any specification. To specify the mechanisms
through which the variables affect labor’s share, I follow Raffalovich et al. (1992) and decompose change
in labor’s share into three additive components: change in employment (column 2), change in labor's
compensation per employee (column 3), and change in product (column 4). All else constant, an increase
in employment and in average compensation (the numerator of labor’s share) increases labor's share,
while an increase in product (the denominator of labor’s share) decreases labor's share.
<Table 3>
21
Consistent with prior research in the U.S., labor’s share declined throughout periods of economic
expansion and job losses. Productivity growth negatively affects labor’s share essentially by having a
larger impact on national income expansion than on rate of compensation. Although productivity growth
opens more employment opportunities, this does not fully translate into an improvement in workers’
aggregate compensation. The negative relation between productivity and labor's share supports the
CBTC hypothesis, although it is not clear that the relation is due to technological change. I will return to
the CBTC hypothesis when discussing the changing effect of productivity on labor's share over time.
That unemployment is negatively associated with labor’s share supports the hypothesis that the massive
increase in unemployment in the last two decades, particularly persistent in Europe, has shifted income
from labor to capital. Thus, it may be the case that the growth in unemployed workers reduces labor's
bargaining power vis-à-vis employers, which in turn decreases the amount of labor employed and
workers’ rate of compensation.
Overall I find that unions increase the size of the national income pie and redistribute income
towards the working class. Unionization increases labor's share through its positive long-term effects on
the number of people employed and compensation rates. The positive effect of union density on labor's
share and the negative effect of the square of union density support the hypothesis of an inverted Ushaped relationship between labor unions and labor's share. Indeed, as Wright (2000) argues, labor union
power adversely affects capitalists’ profits only up to a certain point. That point, on average for the
postwar period in sixteen capitalist democracies, was relatively high, at around 80 percent union
membership of all workers. What that suggests is that at times when nearly all workers were union
members, which applies mainly to Sweden between the early 1980s and the late 1990s, labor unions
promoted economic growth faster than real wages and therefore had an overall negative effect on labor’s
share.
The coefficients for both changes and lagged levels of strike volume are statistically significant
and consistent with theoretical expectations. Strike activity positively affects labor’s share, essentially by
increasing workers’ rate of compensation. What that implies is that the higher the actual exercise of
22
workers' strength via strike activity, the higher labor's share of national income. The positive relationship
between strike volume and labor’s compensation is most likely due to the positive effect on compensation
of workers who directly participate in a strike and the "strike threat effects" that boost non-striking
workers’ pay as well (Rosenfeld, 2006). Although I find that strikes lead to higher average rates of
compensation, this effect is offset by a negative effect on change in employment, most likely caused by
the temporary loss of employment of striking workers. Estimating the effect of the rate of striking
workers also reveals a positive effect on compensation rate and a negative effect on employment growth,
although the effect on labor's share is not statistically significant (data not shown).
The redistribution of the national income pie through the exercise of political power by the
working class is, as expected, in favor of labor. A growing presence of labor-affiliated political parties in
the government benefits labor's income share by increasing compensation rates. The utility of leftist
government for workers' compensation, above civilian spending, may be an outcome of pro-labor
legislation on issues such as minimum wages and active labor market policies that strengthen the position
of women and other disadvantaged workers in the labor market. The distributional consequences to
income of state fiscal policies are, as expected, divided. Civilian spending on direct social services
increases labor’s share by increasing employment and workers’ rate of compensation, most likely through
the public sector. The coefficient for military spending is negative as expected, but not statistically
significant.
The results concerning two of the three variables related to globalization are consistent with the
theoretical model. A rise of 2.5 percentage points in imports from less-developed countries, which
occurred in the period 1980-2000, depresses labor’s share by nearly 1.5 percentage points.11 The negative
effect of imports from developing countries on rate of compensation generally supports Wood’s (1994)
argument that southern imports bring down the wages of the least skilled workers in developed countries,
although I didn’t find support for his related argument that southern imports increase unemployment. The
11
As a result of dividing the coefficient of the lagged southern import (-0.123) by the coefficient of the
lagged labor’s share (0.207). This calculation yields the long-term multiplier that represents the total
long- and short-term effect on labor’s share for a one-point increase in the independent variable.
23
second component of globalization – increasing capital mobility measured by the inflow of foreign direct
investments – decreases labor's share of national income essentially by having a larger impact on product
than on workers’ rate of compensation. The lagged value of migration was found to increase the growth
in employment and to depress the rate of compensation. However, the overall effect of migration on
labor’s share is not statistically significant. It might be the case that migration is negatively associated
with labor’s share, in particular during the last two decades with the rising flow of low-wage, low-skilled
migrant workers from low-income to richer countries. I re-estimate the model only for the period 19802000, but have found no support for this argument.
To test the hypothesis that the positive effect of labor organizations on labor’s share has declined
in the last two decades, I distinguish between the effects up to the late 1970s and since then (Table 4). I
find in fact that unionization and labor governments have been less beneficial to labor's share over the last
two decades. The declining effect of labor-affiliated economic and political organizations on labor's share
is probably due to bargaining decentralization, with firm-level bargaining having flourished alongside
centralized wage talks across European countries. Decentralization should decrease the positive effects of
labor organizations on labor’s share, basically because a fragmented working class can exert less pressure
on employers. Other plausible explanations for the declining effect of unionization on labor’s share may
be the growing political and economic adversity among unions (Hyman, 1992) and the rightward shift of
labor governments during the 1990s (Korpi and Palme, 2003).
<Table 4>
Table 4 also presents an estimation of the changing effect of productivity on labor's share.
According to the CBTC hypothesis, we should expect that the effect of productivity on labor's share
changed from positive to negative during the 1970s, as a result of advanced information technology. The
findings, however, do not reveal a positive coefficient for productivity during the 1960s and the 1970s,
nor only for the 1960s (data not shown). Yet I do find an increasing negative effect for productivity,
which fits the hypothesis that technological change in the last two decades has benefited capital more than
labor. Nevertheless, the increasing negative effect of productivity may also be due to other processes,
24
such as the decline in workers’ bargaining power and, by implication, a smaller share of economic growth
that translates into wages and fringe benefits.
The dynamic nature of the theory is partly confirmed. To more clearly illustrate the dynamic
pattern of the effects, in Figure 5 I plot the lag distributions for some of them. The lag distribution is the
amount by which labor’s share changes each year in response to a one-point increase in the independent
variable. For both union density and civilian spending, the bulk of the effect occurs immediately, with no
effect over future time periods. By contrast, the effects of other class struggle indicators are distributed
across approximately the next 4 years. Workers benefit from strike activity more in the following two
years than in the year they strike, when strike activity converts into a new wage agreement. For leftist
cabinet, southern import and migration, I find that the contemporaneous effect and the lagged effect are in
opposite directions. Migration, for example, immediately increases labor’s share due to an increase in
employment. Yet over the following years, the effect of migration on the labor market tends to reduce
labor’s share, most likely due to a decrease in wages and in the employment of native-born workers.
<Figure 5>
Alternative estimations point to the robustness of the statistical findings. I estimate the same
models for a modified measure of labor’s share by subtracting the top 1 percent income share from the
labor side and adding it to the capital side. The results from a restricted sample of 13 countries over the
period 1975-2000 are substantially the same, most likely since the correlation between changes in labor’s
share and changes in the modified measure for labor’s share is 0.986.12 Sensitivity of the results to
information from individual countries was also assessed with a jackknife analysis. More precisely, I reestimate model 1 in Table 3 by excluding one country after another. The resulting minimum and
maximum values of the estimates, as well as the excluded country for which that estimate was obtained,
are presented in Appendix A. The analysis demonstrates the robustness of the reported findings to
outliers. None of the coefficients changes sign due to the exclusion of a particular country. The
None of the coefficients in a model with labor’s share as the dependent variable is significantly
different from those in a model with workers’ share (see p. 16) as the dependent variable.
12
25
coefficient of southern import, however, becomes zero when Ireland is removed from the model. Yet the
coefficient is negative and statistically significant when I re-estimate the model without Ireland for the
main years of economic globalization (1980-2000). Overall the main results robustly support this method
and nearly all significant coefficients retain their signs in the jackknife analysis.
CONCLUSIONS
The findings lead to an unequivocal conclusion. Since the early 1980s there has been a large and
persistent decline in labor’s share of national income in most capitalist democracies. The growth of
productivity has expanded total income, but in many countries average real wages and fringe benefits
have increased more slowly than labor productivity. Meanwhile, income growth has occurred mainly in
capitalists' profits, sharply increasing capital's share. The current trend of decline in labor’s share came
after a period in which the growth of real earnings and fringe benefits matched or even surpassed the
growth of productivity. Thus, as is the case with earnings inequality, in the last two decades there has
been a reverse long-term trend toward increasing inequality between capital’s profits and labor’s
compensation.
This paper advances the argument that changes in the relative bargaining power of capital versus
labor explain the dynamics of labor's share. I conceptualize this argument into a model of inter-class and
intra-class struggles in the economic, political, and global spheres. All in all, the findings support the
theoretical model. Economic expansion, job losses, the entry of manufacturing goods from lessdeveloped countries, and increasing capital mobility all decrease labor’s share. By contrast, unionization,
strike activity, labor-affiliated government, and government civilian spending increase the share of labor
in national income. Some of these effects have changed over time. In particular, unionization and labor
governments have been less beneficial to labor’s share in the last two decades, most likely due to a
process of bargaining decentralization. The alternative explanation for the decline in labor's share –
capital-biased technological change – is partly confirmed. As expected, productivity has had an
26
increasingly negative effect on labor's share since the early 1980s. Yet I did not find support for the
CBTC hypothesis of a positive relation between productivity and labor's share during earlier years.
Focusing on recent decades, Table 5 presents an estimation of the relative importance of the
various factors implicated in the recent decline in labor’s share. In addition to the common standardized
coefficient, I also calculate two measures for the relative strength of the effects on labor’s share of
variables that were found to be statically significant. Column 3 in Table 5 shows the semi-standardized
coefficient, which expresses the change in labor’s share associated with an increase in one standard
deviation of the independent variable. The measure presented in column 4 gives an idea of the maximum
impact over time of a given variable on labor’s share, given the within-country range of values. Thus,
this measure reflects the extent to which a variable can explain the downturn in labor’s share within a
typical country. Both measures are expressed in percentage points of labor’s share.
<Table 5>
Overall, the erosion in worker’s bargaining power that took place in the economic, political, and
global spheres, together with the sharp rise in unemployment and productivity growth, explains a large
part of the current decline in labor’s share. The findings show that the strongest effect on labor’s share in
the years 1975-2000 corresponds to union density. Falling unionization by one (sample) standard
deviation is associated with a decrease in labor’s share of 1.6 percentage points. The next two most
important factors are the growth in productivity and unemployment, each of which has decreased labor’s
share by about 0.7 percentage points. No less important in explaining the decline in labor’s share are the
negative growth in civilian spending and the increasing foreign investments flow and imports from
developed countries. Finally, the decrease in strike activity seems less important, compared to other
variables, in explaining the decline in labor’s share. Taking into account the average within-country
changes in the variables over 1975-2000, I find that the growth in productivity and unemployment
together with the decline in civilian spending had the maximum impact on the downward trend of labor’s
share. Additionally, union density and foreign investments in developed countries have been exposed as
important factors in explaining the decline in labor’s share in a given country. The relative importance of
27
the various factors may shed light on the variance between countries in the scope of the decline. To take
one example, the U.S. experienced a more gradual decline in labor’s share as compared to Sweden, most
likely due to its lower rates of unemployment and foreign investments as a share of GDP.
At a broader level, the findings suggest equilibrium in the relationship between labor’s share of
national income and the relative bargaining power of capital versus labor during the postwar period.
Labor’s share increased when capital's relative bargaining power was threatened by the ascendancy of
social-democratic projects in the aftermath of World War II. The last two decades have seen a new swing
of the pendulum toward a restoration of bargaining power to the capitalist class. The practices of the
countermovement during the last two decades include policies such as the introduction of greater
flexibility into labor markets, deregulation of capital markets, and a move towards privatization of stateowned sectors. David Harvey (2005) argues that this countermovement is the essence of the neo-liberal
revolution, usually attributed to Thatcher and Reagan after 1979. According to Harvey, neo-liberalism –
“the freedom of the market” – has not benefited everyone everywhere. On the contrary, neo-liberalism is
actually an attempt to restore the capitalist class's share of income to its pre-World War II levels. I find
that this attempt has succeeded in again providing a climate conducive to promoting profits. The rise in
foreign direct investments, increasing imports from undeveloped countries, the fall in union density and
labor militancy, welfare state regress, job losses; all these factors have contributed to the decline in labor's
share of national income.
28
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33
Table 1: Annual Percentage Growth in Compensation of Employees and Labor Productivity, 1960-2000
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Ireland
Italy
Japan
Netherlands
Norway
Sweden
UK
USA
Avarege
1960s
3.1
5.5
4.5
2.7
3.7
3.5
4.9
4.6
5.3
8.6
4.1
2.8
2.6
2.4
3.4
4.1
Product per employed
1970s
1980s
1990s
1.2
1.2
1.7
3.7
1.6
2.1
2.7
1.9
1.6
0.9
1.0
1.6
0.8
0.7
2.2
2.6
2.9
1.3
2.6
2.1
1.3
2.3
1.1
2.1
3.7
1.5
5.4
3.1
1.6
1.1
4.4
2.6
1.0
1.5
-0.2
1.9
2.4
1.7
2.8
1.0
1.3
1.3
1.9
2.0
1.9
1.1
1.6
2.1
2.2
1.5
2.0
Source: See Table 2.
34
Compensation per employee
1960s
1970s
1980s
1990s
3.0
2.1
-0.6
1.1
5.6
3.1
0.3
0.4
5.4
4.0
0.1
0.8
3.1
0.4
0.0
0.2
3.5
0.9
0.5
1.0
7.0
2.9
1.6
0.6
5.2
2.8
0.2
0.5
2.7
-0.3
-1.6
6.1
4.2
1.2
0.5
7.4
3.5
0.3
-0.5
9.8
5.3
0.8
0.4
6.9
2.7
-0.8
0.2
5.7
2.5
0.6
1.8
5.7
1.5
-0.3
1.3
3.6
2.0
1.0
1.4
2.7
0.7
0.5
0.9
5.5
2.6
0.3
0.6
Table 2: Country Averages of Relevant Variables
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Ireland
Italy
Japan
Netherl.
Norway
Sweden
UK
USA
Labor's
share
Product.
66.27
77.12
78.04
68.64
69.13
71.20
71.68
68.03
71.42
69.72
73.41
70.53
63.61
74.06
73.54
68.98
1.69
2.99
2.59
1.51
1.38
2.47
2.58
1.80
3.77
2.61
3.82
1.71
2.42
1.49
2.03
1.97
Unemploy.
5.74
2.73
7.54
7.67
6.30
6.04
6.89
5.72
9.89
8.48
2.22
5.45
2.67
3.68
5.98
5.95
Inflation
6.06
3.93
4.39
4.78
6.08
6.32
5.51
3.38
7.42
7.99
4.37
4.24
5.81
5.90
6.72
4.63
Density
42.01
48.43
49.45
31.11
67.94
59.49
15.04
30.53
49.82
34.48
29.04
30.03
54.85
74.06
39.12
19.69
Strike vol.
323.6
7.86
111.8
519.8
176.9
344.5
109.8
28.5
444.7
772.7
55.0
20.04
69.4
72.3
277.2
260.0
Leftist
42.16
66.26
33.53
71.38
47.72
44.97
33.54
40.73
10.50
20.26
2.49
20.59
62.92
76.92
37.18
48.72
Civilian
17.24
17.61
18.57
18.83
25.07
18.95
19.62
19.47
15.82
17.01
11.61
15.36
18.91
25.19
19.60
20.64
Military
2.72
1.10
2.73
2.11
2.18
1.65
3.95
2.77
1.37
2.48
0.93
3.11
3.05
3.00
4.58
6.01
S. import
1.77
1.58
3.56
1.28
1.41
1.64
2.20
2.14
6.42
1.18
1.01
2.82
2.04
2.67
2.70
1.50
FDI
1.68
0.65
2.64
1.86
1.08
0.85
0.81
0.75
2.86
0.39
0.04
1.81
0.97
1.79
1.82
0.64
Migration
5.94
1.79
1.61
5.23
1.22
-0.58
1.89
3.73
-0.87
0.21
-0.06
2.16
1.25
2.10
0.26
2.86
Sample
63-00
63-00
62-99
62-00
68-99
63-00
62-00
71-00
63-00
62-00
62-00
62-98
62-00
62-00
62-00
62-00
Legend:
Labor's share
Productivity
Unemployment
Inflation
Density
Strike volume
Leftist cabinet
Civilian
Military
Southern import
FDI
Migration
Labor income (of employees and self-employed) divided by GDP (minus net indirect taxes). Source: European Commission's AMECO database.
Annual percent change in real GDP per worker. Source: Penn World Tables.
Civilian unemployment rate. Source: OECD Labor Force Statistics.
Annual percent change in the consumer price index. Source: OECD.Stat.
Union net density (excluding the self-employed and retired union members). Source: Golden, Wallerstein and Lange (2006), Visser (2006).
Working days lost on account of strike per 1,000 workers. Source: ILO’s Yearbook of Labor Statistics (various years).
Leftist seats as a percentage of seats held by all government parties. Source: Huber, Ragin, Stephens, Brady, and Beckfield (2004).
Government civilian public consumption as a percentage of GDP. Source: Huber, Ragin, Stephens, Brady, and Beckfield (2004).
Government military expenditure as a percentage of GDP. Source: Huber, Ragin, Stephens, Brady, and Beckfield (2004).
Manufactured imports from non-OECD countries as a percentage of GDP. Source: United Nations Commodity Trade Statistics Database.
Foreign Direct Investments in reporting economy as a percentage of GDP. Source: IMF International Financial Statistics Database.
The difference between the number of migrants entering and those leaving a country in a year, per 1,000 midyear population. Source: OECD
Population and Vital Statistics dataset.
35
Table 3: Single Equation ECM of Labor’s Share, Employment, Compensation, and Product, 16 OECD
Countries 1960-2000
Short-Term Effects
 Ln Productivity
(t)
 Unemployment
(t)
 Inflation
(t)
 Union Density
(t)
 Union Density2
(t)
 Strike Volumea,b
(t)
 Civilian Spending
(t)
 Ln FDI
(t)
 Migration
(t)
Long-Term Effects
Ln Productivity
(t-1)
Unemployment
(t-1)
Union Density
(t-1)
Union Density2
(t-1)
Strike Volume a,b
(t-1)
Leftist Cabinet b
(t-1)
Military Spending
(t-1)
Southern Import
(t-1)
Ln FDI
(t-1)
Migration
(t-1)
Labor's Share (error correction rate)
(t-1)
Constant
Time dummies
Country dummies
N
R2
Wald χ2
Rho
Change in
Labor's share
Change in
Employment
Change in
Compensationc
Change in
Productc
-0.297**
(-9.13)
-0.655**
(-8.14)
0.028
(1.02)
0.383**
(2.86)
-0.005**
(-3.55)
0.037**
(2.11)
0.637**
(7.34)
-0.119*
(-1.66)
0.039
(1.46)
0.047**
(4.72)
-0.109**
(-4.23)
0.017*
(1.67)
0.416**
(6.10)
-0.004**
(-6.32)
-0.004
(-0.87)
0.043*
(1.90)
0.047
(1.61)
-0.013
(-0.91)
0.006
(0.60)
-0.034
(-1.52)
-0.027**
(-3.10)
-0.087*
(-1.67)
0.000
(0.66)
0.008*
(1.67)
0.078**
(3.41)
-0.027
(-1.11)
0.012
(0.99)
2.642**
(5.72)
-1.819
(-1.53)
-0.161
(-0.32)
2.979
(1.37)
-0.037*
(-1.88)
0.101
(0.48)
-0.206
(-0. 20)
1.653
(1.28)
-0.285
(-1.01)
-2.180**
(-2.68)
-0.047
(-1.13)
-0.018
(-0.46)
0.000
(0.30)
0.082**
(3.57)
0.329**
(2.27)
-0.141
(-1.16)
-0.123*
(-1.72)
-0.234**
(-2.94)
-0.009
(-0.35)
-0.207**
(-7.23)
Yes
Yes
Yes
587
0.530
5,258**
0.024
0.303
(0.99)
-0.001
(-0.08)
0.007
(0.61)
-0.000
(-1.09)
-0.006
(-0.76)
0.035
(0.46)
-0.137
(-1.58)
-0.013
(-0.70)
0.045
(1.11)
0.037**
(2.28)
0.012
(0.77)
Yes
Yes
Yes
587
0.476
4,449**
0.459*
0.413
(1.30)
-0.012
(-0.86)
0.026**
(2.61)
-0.000**
(-2.18)
0.021**
(2.86)
0.095*
(1.91)
-0.081
(-1.57)
-0.032
(-1.54)
0.028
(1.08)
-0.022*
(-1.68)
-0.043
(-1.62)
Yes
Yes
Yes
587
0.508
2,874**
0.326
0.581
(0.03)
0.121
(0.20)
1.507**
(2.30)
-0.017**
(-2.78)
0.298
(0.88)
0.037
(1.02)
-12.835**
(-2.22)
-0.066
(-0.07)
2.075
(1.11)
0.354
(1.08)
0.050**
(5.55)
Yes
Yes
Yes
587
0.876
73,082**
0.541
NOTE – Table entries are OLS estimates corrected for panel-specific autocorrelation. Panel-corrected standard errors are
applied and numbers in parentheses are z-values. * P < .10, ** P < .05, two-tailed test.
a A dummy variable controls for a change in strike definition in the U.S. that since 1980 has excluded work stoppages
involving fewer than 1,000 workers and lasting less than a full day or shift. b Coefficient multiplied by 100. c U.S.$, current
prices, current PPPs, millions.
36
Table 4: Single Equation ECM of Labor’s Share with Period-Specific Effects of Productivity and
Labor Organizations, 16 OECD countries1960-2000
Change in Labor's share
Short-Term Effects
-0.308**
 Ln Productivity 1960-1979
(-7.70)
(t)
-0.283**
 Ln Productivity 1980-2000
(-6.59)
(t)
-0.639**
 Unemployment
(-7.91)
(t)
0.035
 Inflation
(1.35)
(t)
0.645**
 Union Density 1960-1979
(3.41)
(t)
0.088
 Union Density 1980-2000
(0.47)
(t)
-0.008**
 Union Density2 1960-1979
(-3.92)
(t)
2
-0.001
 Union Density 1980-2000
(-0.79)
(t)
0.030**
 Strike Volumea,b
(1.74)
(t)
0.673**
 Civilian Spending
(7.66)
(t)
-0.116
 Ln FDI
(-1.62)
(t)
0.043*
 Migration
(1.68)
(t)
Long-Term Effects
Ln Productivity 1960-1979
-1.918**
(t-1)
(-2.35)
Ln Productivity 1980-2000
-4.751**
(t-1)
(-4.18)
Unemployment
-0.069*
(t-1)
(-1.66)
Strike Volume a,b
0.075**
(t-1)
(3.44)
Leftist cabinet 1960-1979
0.368*
(t-1)
(1.80)
Leftist cabinet 1980-2000
0.299
(t-1)
(1.58)
Military Spending
-0.245**
(t-1)
(-2.02)
Southern Import
-0.162*
(t-1)
(-2.31)
Ln FDI
-0.238**
(t-1)
(-3.03)
Migration
-0.001
(t-1)
(-0.05)
Labor's Share (error correction rate)
-0.213**
(t-1)
(-7.46)
Constant
Yes
Time dummies
Yes
Country dummies
Yes
N
587
R2
0.541
Wald χ2
3,808**
Rho
0.044
NOTE – Table entries are OLS estimates corrected for panel-specific autocorrelation. Panel-corrected standard errors are
applied and numbers in parentheses are z-values. * P < .10, ** P < .05, two-tailed test.
a A dummy variable controls for a change in strike definition in the U.S. that since 1980 has excluded work stoppages
involving fewer than 1,000 workers and lasting less than a full day or shift. b Coefficient multiplied by 100.
37
Table 5: Single Equation ECM of Labor’s Share, 16 OECD Countries 1975-2000
Unstandardized
coefficient
Standardized
coefficient
Semistandardized
Coefficientc
Maximum
Longitudinal
Impact
Short-Term Effects
-0.273**
-0.424**
-0.647
-2.448
 Ln Productivity
(-7.21)
(t)
-0.657**
-0.469**
-0.716
-2.729
 Unemployment
(-8.22)
(t)
0.151
 Union Density
(0.91)
(t)
-0.002
 Union Density2
(-1.30)
(t)
0.016
 Strike Volumea,b
(0.70)
(t)
0.758**
0.387**
0.591
2.655
 Civilian Spending
(6.89)
(t)
-0.160**
-0.088**
-0.135
-0.598
 Ln FDI
(-2.25)
(t)
0.031
0.031
 Migration
(0.82)
(t)
Long-Term Effects
Ln Productivity
-1.964
(t-1)
(-1.47)
Unemployment
-0.082*
-0.191**
-0.292
-0.657
(t-1)
(-1.80)
Union Density
0.089*
1.067*
1.630
1.122
(t-1)
(1.74)
Union Density2
-0.001
(t-1)
(-1.35)
Strike Volume a,b
0.050*
0.104*
0.159
0.410
(t-1)
(1.73)
Leftist Cabinet b
0.233
(t-1)
(1.35)
Military Spending
-0.372**
-0.294**
-0.449
-0.559
(t-1)
(-2.37)
Southern Import
-0.221**
-0.278**
-0.424
-0.651
(t-1)
(-2.04)
Ln FDI
-0.231**
-0.226**
-0.345
-0.940
(t-1)
(-2.82)
Migration
-0.008
(t-1)
(-0.25)
Labor's Share
-0.244**
-0.781**
-1.193
-2.781
(t-1)
(-5.53)
Constant
Yes
Time dummies
Yes
Country dummies
Yes
N
412
R2
0.555
Rho
0.089
NOTE – Table entries are OLS estimates corrected for panel-specific autocorrelation. Panel-corrected standard errors
are applied and numbers in parentheses are z-values. * P < .10, ** P < .05, two-tailed test.
a
A dummy variable controls for a change in strike definition in the U.S. that since 1980 has excluded work stoppages
involving fewer than 1,000 workers and lasting less than a full day or shift. b Unstandardized coefficient multiplied by
100. c Unstandardized regression coefficient multiplied by the sample standard deviation of the independent variable. d
Unstandardized regression coefficient multiplied by the average within-country range in X.
38
Figure 1: Labor's Share in Sixteen OECD Countries, 1960-2000
Austria
Australia
Canada
Belgium
90%
90%
90%
90%
80%
80%
80%
80%
70%
70%
70%
70%
60%
60%
60%
60%
50%
1960
50%
50%
1970
1980
1990
2000
1960
1970
1980
1990
1960
2000
50%
1970
Finland
Denmark
1980
1990
2000
1960
90%
90%
90%
80%
80%
80%
80%
70%
70%
70%
70%
60%
60%
60%
60%
50%
50%
50%
1970
1980
1990
2000
1960
1970
1980
1990
1960
2000
1980
1990
2000
1960
90%
90%
90%
80%
80%
80%
70%
70%
70%
70%
60%
60%
60%
60%
50%
50%
1980
1990
2000
1960
Norway
1980
1990
2000
1960
1970
Sweden
1980
1990
2000
1960
90%
90%
90%
80%
80%
80%
70%
70%
70%
70%
60%
60%
60%
60%
50%
50%
1980
1990
2000
1960
1980
1990
2000
1960
2000
1980
1990
2000
50%
50%
1970
1990
USA
80%
1970
1970
UK
90%
1960
1980
50%
50%
1970
2000
Netherlands
80%
1970
1970
Japan
90%
1960
1990
50%
1970
Italy
Ireland
1980
Germany
France
90%
1960
1970
1970
1980
1990
2000
1960
1970
1980
1990
2000
Labor’s share is measured as the percentage of GDP (at basic prices) that goes to compensate labor (employees and self-employed labor income). The labor income of selfemployed was estimated by multiplying the number of self-employed workers by the average employee compensation of salaried workers.
a
39
70
60
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
50
labor's share
80
90
Figure 2: Box Plots of Labor’s Share: 16 OECD Countries, 1960-2000
Note: Boxes mark the 25th and 75th percentiles of the distribution of union density for each year. The horizontal
line within each box indicates the median. Outliers are indicated by dots.
40
Figure 3: Study's Hypotheses Regarding the Effects of Macroeconomic Buisness Cycles and Class Struggle
Indicators on Labor’s Share of National Income
Macroeconomic
Economic front
Intra-class front
Political front
Global front
Economic growth (-)
Unemployment (-)
Inflation (-)
Unionization (+)
Unionization2 (-)
Strike activity (+)
Bargaining
centralization (+)
Leftist cabinet (+)
Civilian spending (+)
Military spending (-)
Southern imports (-)
Migration (-)
FDI (-)
Labor’s share
Legend: (-)
Indicates a Negative Effect;
(+)
Known Connection (in the US);
Indicates a Positive Effect.
Previously Untested
41
Figure 4: Averages Changes of Labor's Share and Class Struggle Indicators for 16 OECD countries, 1965-2000
0.6
0.6
0.4
0.4
0.2
0
-0.21965
1970
1975
1980
1985
1990
1995
2000
20
0.0
-0.21965
-0.4
-0.6
-0.6
-0.8
-0.8
labor's share
0
1975
1985
6
0.6
1995
-20
-40
-60
union density
0.8
strike vol.
0.8
0.6
4
0.4
0.4
2
0.2
0.0
0
1975
1985
1995
-2
left cabinet
civilian spending
40
0.2
-0.4
-0.21965
60
0.2
0
1965
-0.2
-0.4
1975
1985
1995
-0.4
-4
-0.6
-0.6
-0.8
-6
civilian spending
-0.8
leftist cabinet
southern imports
42
FDI
migration
strike vol.
0.8
union density
0.8
Figure 5: Estimated Lag Distributions for Labor’s Share a
Strike volume
Change in labor's share
Change in labor's share
Union density
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
0
1
2
3
0.001
0.001
0.001
0.000
0.000
0.000
4
0
1
Time periods
0.004
0.002
0.000
1
2
3
4
-0.002
1
3
Change in labor's share
Change in labor's share
2
4
Southern import
4
-0.14
-0.21
-0.28
-0.35
0.10
0.05
0.00
-0.05
0
1
2
-0.10
-0.15
Time periods
Migration
FDI
0.05
Change in labor's share
Change in labor's share
3
0.00
Time periods
0.03
0.01
0
1
2
3
4
-0.03
0.00
0
1
2
-0.05
-0.10
-0.15
-0.20
Time periods
a
4
0.15
Time periods
0.00
-0.01
3
0.30
Military spending
-0.07
4
0.45
0
2
3
0.60
Time periods
1
4
0.75
-0.004
0
3
Civilian spending
Change in labor's share
Change in labor's share
Leftist cabinet
0
2
Time periods
Time periods
Change in labor’s share over time after a one-point increase in the independent variable.
43
Appendix A: Jackknife Analysis
Short-Term Effects
 Ln Productivity
(t)
 Unemployment
(t)
 Inflation
(t)
 Union Density
(t)
 Union Density2
(t)
 Strike Volumea,b
(t)
 Civilian Spending
(t)
 Ln FDI
(t)
 Migration
(t)
Long-Term Effects
Ln Productivty
(t-1)
Unemployment
(t-1)
Union Density
(t-1)
Union Density2
(t-1)
Strike Volume a,b
(t-1)
Leftist Cabinet b
(t-1)
Military Spending
(t-1)
Southern Import
(t-1)
Ln FDI
(t-1)
Migration
(t-1)
Labor's Share (error correction rate)
(t-1)
Country
Minimum
Estimate
Maximum
Country
Norway
-0.325**
(-9.86)
-0.736**
(-8.00)
0.007
(0.27)
0.326**
(2.33)
-0.006**
(-3.86)
0.026
(1.45)
0.451**
(5.17)
-0.177*
(-2.46)
0.028
(1.02)
-0.297**
(-9.13)
-0.655**
(-8.14)
0.028
(1.02)
0.383**
(2.86)
-0.005**
(-3.55)
0.037**
(2.11)
0.637**
(7.34)
-0.119*
(-1.66)
0.039
(1.46)
-0.273**
(-8.07)
-0.610**
(-7.20)
0.044
(1.54)
0.456**
(3.19)
-0.004**
(-2.34)
0.046**
(1.97)
0.748**
(7.59)
-0.071
(-0.98)
0.075*
(2.32)
Ireland
-2.972**
(-3.59)
-0.085**
(-1.91)
-0.060
(-1.44)
-0.000
(0.62)
0.063*
(1.85)
0.133
(0.90)
-0.226
(-1.30)
-0.182*
(-2.39)
-0.293**
(-3.45)
-0.027
(-1.06)
-0.223**
(-7.26)
-2.180**
(-2.68)
-0.047
(-1.13)
-0.018
(-0.46)
0.000
(0.30)
0.082**
(3.57)
0.329**
(2.27)
-0.141
(-1.16)
-0.123*
(-1.72)
-0.234**
(-2.94)
-0.009
(-0.35)
-0.207**
(-7.23)
-1.276
(-1.60)
-0.019
(-0.41)
0.030
(0.65)
0.001
(1.54)
0.100**
(4.03)
0.410**
(2.69)
0.003
(0.02)
0.009
(0.06)
-0.179**
(-2.20)
0.018
(0.62)
-0.192**
(-6.80)
Denmark
Belgium
Sweden
Denmark
Australia
Norway
Norway
UKM
Sweden
Austria
Sweden
Italy
Italy
Sweden
U.S.
Austria
Finalnd
Sweden
Austria
Finland
UKM
Denmark
Sweden
Italy
Sweden
Sweden
Canada
Australia
Finland
Italy
Sweden
Finland
Canada
Austria
Ireland
Australia
Ireland
Sweden
Notes: Entries are coefficient estimates from Model 1 in Table 3, together with minimum and maximum coefficient
estimates resulting from re-estimates of the model while excluding each country one at a time. They reveal the
responsiveness of the coefficient estimates to the inclusion of particular countries.
44
Appendix B: Correlation for variables used in the analysis - levels
1. Labor’s share
2. Labor's Share (t-1)
3. Ln Productivity
4. Unemployment
5. Inflation
6. Union Density
7. Union Density2
8. Strike Volume
9. Leftist Cabinet
10. Civilian Spending
11. Military Spending
12. Southern Import
13. Migration
14. Ln FDI
1.
1.000
0.958
-0.478
-0.282
0.284
0.105
0.086
0.057
-0.088
- 0.161
0.003
-0.207
-0.294
-0.267
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
1.000
-0.465
-0.227
0.236
0.106
0.088
0.026
-0.094
-0.154
-0.022
-0.170
-0.293
-0.284
1.000
0.372
-0.255
-0.178
-0.119
-0.272
0.206
0.472
0.031
0.305
0.335
0.339
1.000
-0.133
-0.111
-0.089
0.031
-0.086
0.378
-0.102
0.443
-0.070
0.315
1.000
0.216
0.183
0.390
-0.016
0.011
0.066
-0.136
-0.098
-0.161
1.000
0.977
0.014
0.180
0.384
-0.269
0.062
-0.128
0.057
1.000
-0.027
0.208
0.487
-0.229
0.061
-0.116
0.051
1.000
-0.083
-0.117
0.060
-0.185
-0.060
-0.000
1.000
0.297
0.023
-0.053
0.126
0.142
1.000
0.212
0.077
0.062
0.190
1.000
-0.205
0.075
0.004
1.000
-0.027
0.428
1.000
0.259
1.000
Appendix C: Correlation for variables used in the analysis – first differences
1. Labor’s share
2. Labor's Share (t-1)
3. Ln Productivity
4. Unemployment
5. Inflation
6. Union Density
7. Union Density2
8. Strike Volumea
9. Leftist Cabinet
10. Civilian Spending
11. Military Spending
12. Southern Import
13. Ln FDI
14. Migration
1.
1.000
-0.122
-0.301
-0.004
0.174
0.025
0.005
0.001
-0.074
0.438
0.150
-0.126
0.037
-0.053
2.
1.000
0.022
0.232
0.246
0.101
0.087
-0.029
-0.015
0.129
0.036
-0.033
-0.057
-0.051
3.
1.000
-0.582
-0.246
0.197
0.178
0.049
0.061
-0.400
-0.215
0.119
0.133
0.083
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
1.000
0.304
-0.193
-0.224
-0.089
-0.085
0.365
0.212
-0.110
-0.204
-0.126
1.000
0.097
0.094
-0.064
-0.042
0.309
0.166
-0.044
-0.079
-0.101
1.000
0.954
0.057
-0.001
0.072
-0.084
-0.074
-0.005
-0.001
1.000
0.058
-0.007
0.087
-0.075
-0.079
0.014
-0.006
1.000
-0.006
-0.026
-0.030
0.023
0.025
0.039
1.000
-0.073
-0.069
0.001
0.014
-0.066
1.000
0.323
-0.182
-0.091
-0.090
1.000
-0.051
0.023
0.010
1.000
0.001
0.066
1.000
0.063
1.000
45