Declining Labor Shares and Bargaining Power: An Institutional Explanation
28 Pages Posted: 12 Mar 2009 Last revised: 22 Apr 2009
Date Written: April 16, 2009
Abstract
We model the design of labor market institutions in an economy characterized by moral hazard and irreversible investment. In this setting the institutional design affects the bargaining power of labor. At the optimum, the allocation of bargaining power balances the aforementioned frictions. We examine the impact of improved monitoring and investigate the implication upon labor share, effort and investment. The model's predictions are consistent with recent decreasing labor shares and wages per effective labor units observed in most OECD countries. It is also consistent with rising labor productivity and declining ratio between effective labor and capital found in many of these countries.
Keywords: Institutions, moral hazard, irreversible investment, bargaining, labor share, productivity
JEL Classification: D02, D24
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Nature and Growth of Vertical Specialization in World Trade
By David L. Hummels, Jun Ishii, ...
-
Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras
-
Integration vs. Outsourcing in Industry Equilibrium
By Gene M. Grossman and Elhanan Helpman
-
Firms, Contracts, and Trade Structure
By Pol Antras
-
The Evolving External Orientation of Manufacturing: A Profile of Four Countries
-
The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries
-
Can Vertical Specialization Explain the Growth of World Trade?
By Kei-mu Yi