The causes of falling wage share: sectoral and firm level evidence from developed and developing countries – what have we learned?
The last four decades have been characterised by drastic changes in the distribution of income between
wages and profits in both OECD countries and emerging economies. We have recently analysed the
causes of the decline in the wage share in the developed and developing countries for a project titled
The Causes of Falling Wage Share and Prospects for Growth with Equality in a Globalized Economy for
the Institute of New Economic Thinking, and this paper summarizes our findings. We provide evidence
that changes in bargaining power, in particular the fall in union density and welfare state retrenchment,
as well as financialization and offshoring lie at the core of rising income inequality between labour and
capital in both developed and developing economies. We challenge the established consensus that
inequality is an unavoidable outcome of technological change or globalisation, and show the importance
of labour market institutions and social protection policies.