Unemployment and the wage share: a long-run exploration for major mature economies

The decoupling between labour compensation and productivity in high‐income countries: Why is the nexus broken?

“…However, in the analyses of the classical economists and Marx, which can be regarded as the historical and analytical roots of the conflict theory of income distribution, labour market conditions are regarded as relevant factors that can affect wages, along with, of course, other institutional, historical and political elements. This view finds empirical support in recent works documenting a negative effect of labour market slack on the labour share (Kristal, 2010; Dünhaupt, 2017; Pariboni and Tridico, 2019; Stirati and Paternesi Meloni, 2021). The downward pressure exerted on wages by unemployment is also found in the OECD's (2014a) study.…”

“…Canada and Japan), as attested by the relative stability of the labour share in the 1960s and the first half of the 1970s, followed by a decrease that started in the late 1970s or the beginning of the 1980s (cf. Stirati and Paternesi Meloni, 2021). 4 While our empirical analyses refer to 'labour compensation', in some specific passages of the article where we deal with theories, such as the present one, we use the term 'wage'.…”

“…The number of observations may decrease when considering more regressors simultaneously. 27 As in Stirati and Paternesi Meloni (2021), we multiply the unemployment rate by an index of (average) unemployment duration obtained by dividing the actual duration of unemployment by the country-specific minimum duration. 28 All the enlarged measures of 𝐿𝑀𝑆 are standardized (min.-max.)…”

“…Among these interpretations, we can also include several contributions belonging to the broadly defined post‐Keynesian tradition (among others, Onaran, 2011; Dünhaupt, 2017; Stockhammer, 2017; Pariboni and Tridico, 2019), which emphasize the role of labour market institutions, globalization and financialization in the erosion of the labour share 15 . Concerning the effect of unemployment in reducing the bargaining power of workers, Stirati and Paternesi Meloni (2021) highlight the impact of labour market slack in depressing the labour share in the private sector of the economy for major OECD countries. Finally, Guschanski and Onaran (2022) find that in OECD countries offshoring and changes in labour market institutions are relevant factors in reducing the labour share, whereas evidence of the effect of technological change is not robust.…”

Bargaining power, structural change, and the falling U.S. labor share

“…These effects are likely attributable to changes in labor bargaining power over the course of the business cycle, through channels such as the reserve army of the unemployed (Barrales-Ruiz et al 2020). Stirati and Paternesi Meloni (2021) demonstrate the importance of this reserve army effect empirically, as their analysis for a number of different countries shows that labor market slack has a negative effect on the labor share.…”