Discussant: Pengfei Liu (Assistant Professor, Department of Environmental and Natural Resource Economics)

Wage Share Decomposition in Developing Countries

Abstract:

In contrast with conventional economic theories, functional income distribution—the shares of income between labor and capital—has been not constant in the past four decades. In particular, the labor shares of income have been falling in many developed and emerging economies, including countries in East Asia, where many scholars used to praise their economic regimes as ‘growth with equity.’ The empirical data thus far shows that the story has diverged. When Taiwan experienced the declining trend of the labor share, Thailand and South Korea experienced increasing trends. This paper therefore explores the role of structural change in explaining aggregate wage share growth in those three countries by using accounting methods to decompose real wage and labor productivity growth into their sectoral components. The wage share growth is decomposed into contributions from changes in sectoral real wage and sectoral labor productivity. The shift-share analysis of the wage share focuses on the within-sector and the reallocation effects for Thailand, South Korea, and Taiwan using data dating back to the early 1980s.