The Political Economy of Income Distribution: industry level evidence from 14 OECD countries

Author: Alexander Guschanski, Özlem Onaran
Country: Australia, Austria, Belgium, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom, United States of America
Year: 2017
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This article presents an econometric estimation of the determinants of the wage share, using sectoral data for 14 OECD countries for the period 1970- 2014. We present estimations for the wage share of high- and low-skilled workers and within manufacturing and service industries. We augment sectoral data with input-output tables and union density data to obtain detailed estimations of the effect of technological change, globalization and bargaining power on the wage share.

We find a significant negative effect of globalization and we discover offshoring to emerging markets to be a robust driver of this process. Technological change had an impact which differs by skill group, but theoretical issues and lack of robustness of the results cast doubt on the hypothesis of skill-biased technological change as a key factor in the overall decline in the wage share. Furthermore, we find a robust effect of institutional factors such as union density and minimum wages on the wage share, lending strong support to the political economy approach to functional income distribution.

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