Determinants of the Labor Share: Evidence from a Panel of Firms

ABSTRACT: 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 ’ “demograph-ics, ” 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. Since 1995, when reliable data on gross domestic product (GDP) and its compo-nents became first available, it has been observed in Poland that labor productivity Jakub Growiec is an economic expert at the National Bank of Poland and an assistant professor at Warsaw School of Economics, Warsaw, Poland.. This paper was written in the context of the MICRO-DYN international economic research project focusing on the com-petitiveness of firms, regions, and industries in the knowledge-based economy. The project involves seventeen European research institutes and is funded by the EU Sixth Framewor