Wirtschaft und Gesellschaft 42. Jahrgang (2016), Heft 4 tions, as well as social security and welfare regimes affect the wage share. While Austria is the focus of our analysis in this paper, we compare our results with estimations for Denmark, France, Germany, Italy, Spain, the UK, and the US.3 We confirm previous research based on the analysis of pooled aggregate county data attributing the decline in the wage share to financialisation, globalisation and a decline in bargaining power of labour; however, we find that these factors impact countries and skill groups within countries differently. Thereby we confirm the upmost relevance of country specific institutional setting in determining income distribution. In Austria, union density and household debt appear to be the strongest drivers of the decline in the wage share. Although we also find evidence for some negative impact of technological change, albeit not robust, our results indicate that the increase in income inequality is not inevitable but can be altered by political and institutional decisions. The remainder of the paper is organised as follows. Section 2 provides a short review of the theoretical literature the determinants of functional income distribution from the perspective of different schools of thought as well as an overview of the empirical literature. Section 3 introduces our data and the stylised facts. Section 4 presents our estimation methodology and expected results based on the theoretical considerations introduced in section 2. Section 5 presents the estimation results and section 6 concludes. 2. Literature review The issue of increasing personal income inequality, in particular earnings inequality, has attracted a significant amount of research. In contrast, changes in functional income distribution, i. e. the fall in the share of wages in GDP have only recently been the subject of research with an aim to pin down the effects of technology, globalisation, and changes in the bargaining power of labour. Different economic schools of thought developed distinct starting points for their analysis of functional income distribution. The neoclassical approach, which also forms the basis for the New Keynesian analysis, starts with a production function with two factors: capital and labour. The relative income shares of labour and capital are determined by technology. If a firm produces in a fully competitive market with full-capacity utilisation and the production function is characterised by constant elasticities of substitution between capital and labour the relative income shares of the productive factors are determined by their marginal productivity which is technologically given by the employment elasticity of output. Hence, the focus on technological change which characterises 558