Marco Amendola
Università degli Studi dell’Aquila
Francesco Ruggeri
Università degli Studi di Salerno
Abstract
This paper empirically examines the relationship between functional income distribution and labor productivity. In particular, it tests the hypothesis that a higher wage share promotes productivity growth by pushing firms to invest and innovate in order to preserve profit margins. Using panel data for OECD countries, the results provide strong support for this mechanism: increases in the wage share are associated with significantly higher labor productivity growth. The magnitude of the effect suggests that the contraction of wage shares in many advanced economies may explain an important part of their recent productivity slowdown. The analysis further shows that this positive link operates primarily through capital deepening, consistent with the view that wage pressures incentivize investment in laborsaving technologies. By contrast, no robust relationship is found between the wage share and Total Factor Productivity
Keywords
Labor productivity; Wage share; Productivity slowdown; Capital deepening; Induced technical change
Jel Codes
C23 E25 D33 O30
