GaSLS · The Role of Global and Sectoral Factors in Labour Share Fluctuations
Horizon 2020 — Marie Skłodowska-Curie Actions
- Duration
- 2017-07-03 → 2019-07-02
- EU contribution
- €152,653
- Participants
- 1
- Scheme
- MSCA-IF
Lines connect the coordinator with its partners.
Results in brief
The Role of Global and Sectoral Factors in Labour Share Fluctuations
Over the last three decades, the labour’s share of income, a measure showing the distribution of income between profits and wages, has been falling. This observation is at odds with Kaldor’s (1961) most influential stylized fact for macroeconomic modelling: the long run stability of the labour shares. Following Kaldor’s stylized fact, social scientists had largely neglected the topic until the early 1990s and economic research has only lately made a substantial comeback. The observed fall has attracted the attention of economists, policymakers and the media. This is because the fluctuations of the labour share have important effects on the business cycle, economic growth, inequality and macroeconomic policies. The extent to which this matters to society was demonstrated by protests such as ‘Occupy Wall Street’, a movement against social and economic inequality worldwide. More recently, Thomas Piketty’s book, ‘Capital in the Twenty-First Century’, on the back of unprecedented sales, was described by the Economist, in 2014, as “the book that caught the world by storm”. As Piketty states on p.2: “the distribution of wealth is of interest to everyone”. These are real world examples suggesting that inequality-related research is a priority for our society. Moreover, The Societal Challenge of the Horizon 2020 programme has identified that one crucial challenge for the future of Europe is to reduce inequalities and social exclusions in the continent. In 2014, the G20 leaders recognized the need to “support development and inclusive growth, and help to reduce inequality and poverty”. The fall in the labour share of most advanced economies since the 1980s has been associated with income inequality. Research by the Federal Reserve Bank of Saint Louis has demonstrated that the larger the decline in the labour share the more inequality increased in advanced economies. Therefore, examining the sources of the decline in the workers’ share of income is crucial to improve our understanding of macroeconomic dynamics and the policy implications drawn from macroeconomic models. The aim of this project is to enhancer understanding of what drives the labour share from a multi-country, multi-sector, and firm-level perspective, by accounting for differences in investment opportunities arising from financial obstacles. This project places finance, and in particular, the role of financial constraints at the heart of the labour share literature.
Data: CORDIS, © European Union
Project objective
This project will investigate the distribution of national income between profits and wages as proxied by the labour share in national income. The focus will be to identify the empirical regularities of factor shares in developed and emerging countries and across industries. In 1957, Kaldor established an influential stylised fact for macroeconomic modelling: the stability of the labour share. This finding, which has implications for macroeconomic dynamics, the shape of the production function and inequality, led social scientists to become 'silent' and to neglect research on labour share for many decades. Standard neoclassical growth and business cycle models, following Kaldor’s stylised fact, assume a one-to-one substitution between capital and labour. However, the recent observation of a declining labour share points to an incomplete understanding of macroeconomic dynamics and to potentially erroneous policy implications drawn from these models. This has renewed the interest of macroeconomists to unveil the sources driving this decline. The proposed study on the fluctuations of the labour share from a solid empirical standpoint will provide the broad social science academic community and the policymakers with a better understanding of the behaviour of the labour share. In particular, this project aims at (i) reconciling the existing literature on the sources of labour share decline by examining a large set of driving forces and their relationship to key macroeconomic variables; (ii) providing a descriptive analysis of labour share from a multi-sector and multi-country perspective; as well as, a decomposition of labour share into national and external factors. This project will thus strictly link academic literature and policymakers’ interests with issues such as what should be the appropriate response of governments to the observed decline of the labour share and its implications for fiscal and monetary policy.
Original text from CORDIS.
Participants
- TRAPEZA TIS ELLADOS AE · AthinaCoordinatorGreece
Links
Data: CORDIS, © European Union