Seminar Topic:

We investigate the decline of the labour share in a world characterized by rapid technological changes and increasing heterogeneity of capital assets. Our theoretical model allows for these assets to affect the labour share in different directions depending on the capital-labour substitution/complementary relationship and the workers’ skill level. We test the predictions of our model using a large cross-country, cross-industry data set, considering different forms of tangible and intangible capital inputs. Our results show that, over the 1970-2007 period, the decline of the labour share has been mainly driven by technical change and ICT assets, mitigated by increasing investments in R&D-based knowledge assets. Using new information on intangible capital we find that, in more recent years (from 1995 onwards) innovative properties increase the labour share while economic competencies contribute to its decline, particularly for the low and intermediate skilled workers. Our results are robust to an array of econometric issues, namely heterogeneity, cross-sectional dependence, and endogeneity.

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