Vincenzo Dall'Aglio

The present paper analyzes the medium- and the short-run dynamics of the labor share in Italy adopting an unusual approach to the problem. We do notstudy the aggregate level, but analyze instead the labor shares of firms...

ABSTRACT We survey the rich literature studying the behaviour of labor shares in recent decades. To explain their dynamics – the main feature being the decline of European and American shares starting in the 1980s – such literature considers models that use either neoclassical or Leontief-type production functions, with both perfectly competitive markets and monopolistic competition coupled with bargaining between firms and workers. These empirical studies in general have produced results that are not very robust. However, they suggest that technical change has a negative and significant impact on the labor share. Evidence for a negative effect of globalization variables is clearly revealed for developing countries, whilst for advanced countries, this effect finds less support. Also, they show that product and labor market regulation issues have mixed effects on the labor share. An alternative to the econometric explanation of labor share is given in the final section. Key words: Factor shares, functional income distribution. JEL Classification: E24, E25.