Globalization and the Labor Share in National Income

18 Pages Posted: 29 Mar 2017

See all articles by Ha Thi Thanh Doan

Ha Thi Thanh Doan

Asian Development Bank Institute

Guanghua Wan

Asian Development Bank Institute

Date Written: January 17, 2017

Abstract

Contradicting the conventional wisdom of constant factor shares, the portion of national income accruing to labor has been trending downward in the last three decades. This decline must have contributed to rising inequality as labor income is more evenly distributed than capital income. This study contributes to the literature on income inequality by exploring the role of globalization in driving the labor share. In particular, we focus on the impacts of trade openness and foreign direct investments (FDI) on the labor share. Using country-level panel data for 1980–2010, the study finds that trade is a significant and robust determinant of labor share. Generally speaking, export depresses while import increases the labor share. The impact of FDI, however, is insignificant. These results are similar for both developed and developing countries.

Keywords: labor share, wage share, globalization, imports, exports, FDI

JEL Classification: E25, F62, D63

Suggested Citation

Doan, Ha Thi Thanh and Wan, Guanghua, Globalization and the Labor Share in National Income (January 17, 2017). ADBI Working Paper 639, Available at SSRN: https://ssrn.com/abstract=2942647 or http://dx.doi.org/10.2139/ssrn.2942647

Ha Thi Thanh Doan (Contact Author)

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Guanghua Wan

Asian Development Bank Institute ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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