1 We are very grateful to Manuel Arellano for much helpful advice. We wish to thank Brian Bell for supplying us with the CEP-OECD Data Set and Steve Bond for help with DPD98. A preliminary version of this paper was circulated and presented at the MIT International Economics Seminar in March 1995, while Saint-Paul was visiting the MIT Economics Department. We are grateful to participants at that workshop and to those at CREST, the Madrid Macroeconomics Workshop (MadMac), Universitat Pompeu Fabra and Université de Toulouse for their helpful comments. AbstractIn this paper we study the evolution of the labor share in the OECD since 1970. We show it is essentially related to the capital-output ratio; that this relationship is shifted by factors like the price of imported materials or the skill mix; and that discrepancies between the marginal product of labor and the real wage (due to, e.g., product market power, union bargaining, and labor adjustment costs) cause departures from it. We provide estimates of the model with panel data on 14 industries and 14 countries for 1973-93 and use them to compute the evolution of the wage gap in Germany and the US.Jel classification. E25, J30.

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