Full text: The political economy of income distribution: industry level evidence from Austria (156)

There has been a significant decline in the share of wages in GDP in both developed and 
developing countries since the 1980s. This paper analyses the determinants of the wage share 
(labour compensation as a ratio to value added) using sectoral data with country specific 
estimations for Austria and selected OECD countries.    
We compile a comprehensive sector-level dataset of nine OECD countries (Austria, 
Denmark, France, Germany, Italy, Spain, Sweden, the UK, the US) for the period of 1970 to 
2011, which allows us to trace the developments in the wage share across high and low 
skilled sectors and within manufacturing and service industries. Our findings provide new 
insights with regard to the drivers of falling wage share. By conducting country specific 
estimations, we analyse how institutional differences in industrial relations, as well as social 
security and welfare regimes affect the wage share.  
Our findings lend strong support to the political economy approach to functional 
income distribution. Technological change had an impact, especially in Austria, Italy, the US 
and for the total country sample, but the effects are not robust with respect to the use of 
different specifications and the wage share in most countries in our sample appears to be 
driven by different variables reflecting the bargaining power of labour such as union density, 
adjusted bargaining coverage and government spending. The relevance of these variables 
differs considerably across countries, lending support to our approach of country specific 
We find that globalisation had a strong impact on the wage share in all countries. The 
effect of globalisation on the wage share was least strong in Denmark. In Austria, Germany, 
and to a lesser extent in the UK, the effect is due to outward FDI and intermediate import 
penetration which reflects the impact of international outsourcing practices. Intermediate 
imports penetrations had no significant impact in Spain while FDI played a smaller role in 
France and the US. Estimation results for selected ‘low wage’ countries (Brazil, China, 
Indonesia, India, Korea, Mexico, Taiwan, Turkey) confirm the negative effect of 
globalisation, driven mainly by the other side of outsourcing – exports from low wage to high 
wage countries. Different institutional variables appear to be relevant for each country. 
Germany exhibits the most robust positive effect of union density on the wage share, while 
the decline in union density explains roughly 80 percent of the decline of the wage share in 
Austria. Conversely, collective bargaining coverage, together with social government 
spending, plays a more important role in France, the UK and the US. Financialisation had the 
most pronounced effect in Austria, the UK and the US, while it appears to be also relevant in 
Germany. We find mixed results for the effect of personal income inequality on the wage 
share. However, there is indicative confirmation for a negative effect in Austria, Germany, 
the UK and the US.

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