Capital’s grabbing hand? A cross-country/cross-industry analysis of the decline of the labour share

We examine the determinants of the within-industry decline of the labor share, using industry-level annual data for 25 OECD countries, 20 business-sector industries and covering up to 28 years. We find that total factor productivity growth—which captures (albeit imprecisely) capital-augmenting or labor-replacing technical change—and capital deepening jointly account for as much as 80 % of the within-industry contraction of the labor share. We also find that another factor explaining the aggregate decline of the labor share is the increased international competition, with higher import penetration causing a contraction of the share of labour-intensive industries in total value added. However, the fraction of the drop of the labor share explained by international competition remains limited.