The decline of labour share in OECD and non-OECD since the 1980s

This paper examines the causes of falling labour share in OECD and non-OECD countries since the 1980s by using Karabarbounis and Neiman's (2014) labour share model. While both groups of countries experience an elasticity of substitution between capital and labour, the factors driving down labour share are different. In OECD countries, export and volatility are key drivers, but in non-OECD countries, the significant factors are financial openness and the capital's relative price. Overall, technological advancement - as reflected by declining capital's relative price - coupled with globalization and low economic risk are key factors in explaining a long-term decline of labour share worldwide.