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OECD labour share trends: factor efficiency vs. market distortions in a neoclassical framework

2025-09-01Research article Open access
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dc.contributor.authorRio, Fernando del
dc.contributor.authorRebelo, Francisco
dc.date.accessioned2025-09-22T09:45:33Z
dc.date.available2025-09-22T09:45:33Z
dc.date.issued2025-09-01
dc.description.abstractWe find that, for the vast majority of the 29 OECD countries, capital efficiency has declined, while labour efficiency has increased. Moreover, capital and labour exhibit a relatively high degree of complementarity. On average, countries with a larger relative decline in capital efficiency have also experienced a greater decline in the labour share. This pattern is consistent with the neoclassical theory of functional income distribution: if capital and labour are gross complements, a decline in the relative efficiency of capital reduces the demand for labour, thereby lowering equilibrium wages and the labour share. In some countries — including the United States, the United Kingdom and Australia — this mechanism can accurately account for much of the observed evolution in the labour share, while in others — including the three largest European economies (Germany, France and Italy) — market frictions and distortions affecting labour demand have played a more prominent role. Policies aimed at halting the decline in capital efficiency, or mitigating market frictions and distortions, can therefore enhance productivity and support wage growth.eng
dc.identifier.citationRio, F. D., & Rebelo, F. (2025). OECD labour share trends: factor efficiency vs. market distortions in a neoclassical framework. Economic Analysis and Policy, 87, 2554-2591. https://doi.org/10.1016/j.eap.2025.08.044
dc.identifier.doi10.1016/j.eap.2025.08.044
dc.identifier.issn2204-2296
dc.identifier.other06a4b68e-cb7e-4c29-a9d1-1ac186266aa8
dc.identifier.urihttp://hdl.handle.net/10400.14/55055
dc.identifier.wos001565525000002
dc.language.isoeng
dc.peerreviewedyes
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/
dc.subjectCapital deepening
dc.subjectCapital efficiency
dc.subjectElasticity of capital-labour substitution
dc.subjectFirm labour wedge
dc.subjectLabour share
dc.subjectTechnical change
dc.titleOECD labour share trends: factor efficiency vs. market distortions in a neoclassical frameworkeng
dc.typeresearch article
dspace.entity.typePublication
oaire.citation.endPage2591
oaire.citation.startPage2554
oaire.citation.titleEconomic Analysis and Policy
oaire.citation.volume87
oaire.versionhttp://purl.org/coar/version/c_970fb48d4fbd8a85

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