Labor Share in Some Advanced Countries

We challenge the accepted wisdom of a global secular decline in the labor share. A simple theoretical model is proposed to raise the main factors of labor share changes. We document three issues in the existing literature which can bias the diagnosis on labor share evolutions: (i) starting periods for the empirical analysis; (ii) accounting for self-employment; and (iii) accounting for residential real estate income. Concerning the last one, it seems to us appropriate to exclude real estate income to analyse how value added is shared between labor compensation and profits. Usual explanations of labor share trends (technology, trade, market power, unionization…) have nothing to do with real estate income.

An empirical analysis is carried out on ten developed countries: Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden, the United Kingdom and the United States. When the three issues and potential biases are set aside, the orientation of the labor share in the business sector appears not to be a general downward or upward one. With real estate services included in the value added, it is a clear downward one in seven countries, a clear upward one in two countries and a quasi-stability in the last country. When real estate services are removed from the value added, it becomes a clear downward one in five countries, a clear upward one in three countries and a quasi-stability in two countries.