Determinants of the Labor Share Evidence from a Panel of Firms

This paper analyzes the sources of labor share variations and the general downward trend of the labor share observed recently in most European economies. Using a unique quarterly firm-level panel data set from the Polish business sector for the period 1995-2008, the author quantifies the impacts on the observed variation in labor shares of (1) firms' "demographics," including age as well as entry and exit behavior; (2) selected labor market characteristics, such as newly filled vacancies, labor market tightness, and human capital measures; (3) firm- and sector-level measures of export intensity, competition, and ownership structure; and (4) shifts in the sectoral makeup of gross domestic product. The potential cross-effects among these variables are also tested. The author concludes that while sector-specific factors, changes in the ownership structure, and the accumulation of human capital explain a large fraction of the observed downward trend in the labor share, labor market characteristics, market structures, and firm demographics are robust correlates of labor share changes at high frequency.