The distribution of income between labour and capital has gained considerable attention in recent years in light of declining labour income share in many countries. As labour income tends to play a larger role as a source of income among lower-income households than among higher-income households, a decline in the labour income share may also translate into a widening in income inequalities.
OECD Compendium of Productivity Indicators 2018
OECD Compendium of Productivity Indicators
Labour income shares
Key findings
Labour income shares have declined in most countries over the last fifteen years, with the largest falls in Ireland, Poland and Portugal (about 10 percentage points), followed by Hungary, Israel and Mexico (about 5 percentage points). Labour income shares in 2016 were particularly low in these economies, ranging from 36% in Ireland to 52% in Portugal.
In most countries, the decline has been more significant in manufacturing than in business services, increasing the gap between labour income shares in business services and those in manufacturing, reflecting the more capital-intensive nature of manufacturing activities.
Definition
The labour income share is calculated as the ratio of total labour compensation to GDP. The labour component of income earned by the self-employed is not separately identifiable. To estimate this, a simple assumption is used, namely that the self-employed and employees earn the same average hourly compensation for labour. Total labour compensation is therefore calculated as compensation of employees multiplied by the number of hours worked by all persons (employees and self-employed), divided by the hours worked by employees.
For Chile, Japan, Korea and the United States, as total hours worked by main ISIC Rev.4 economic activity are not available, the number of persons employed by sector is used, and so, Figure 5.4 necessarily assumes that the average labour compensation of the self-employed is the same as that of employees for these countries.
Note that the decline in labour income shares can be decomposed into a labour productivity component and a real labour compensation per hour component, when labour compensation costs are adjusted for inflation using the same price index as that used to deflate value added. In other words, declining labour income shares are consistent with productivity-wage decoupling.
Information on data for Israel: http://dx.doi.org/10.1787/888932315602.
Comparability
Total labour income represents the compensation received by both employees and self-employed for their labour. The compensation received by employees is readily available in the national accounts. However, total income received by the self-employed is recorded only as mixed income, with no distinction between the returns on their labour and the returns on their capital. Therefore, as described above, self-employed labour compensation is necessarily imputed. These imputations necessarily assume that either the average labour compensation per hour worked of the self-employed and employees or the average labour compensation per self-employed and per employee is the same, within a given sector. To what extent these assumptions (and in particular the latter) are true is likely to differ across countries.
Sources and further reading
OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/na-data-en.
OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.
OECD (2017), OECD Compendium of Productivity Indicators 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/pdtvy-2017-en.
Figure 5.3. Labour income shares in the total economy
Figure 5.4. Labour income shares in manufacturing and business services
