Globalization and the decline in labor shares: Exploring the relationship beyond trade and financial flows

Andrew Young, Maria Y Tackett

Research output: Contribution to journalArticlepeer-review


We examine the empirical relationship between the institutions of economic freedom and labor shares in a panel of up to 93 countries covering 1970 through 2009. We find that a standard deviation increase in the Fraser Institute's Economic Freedom of the World (EFW) score is associated with about a 1/3 standard deviation increase in a country's labor share. Starting from the sample mean labor share in our panel, this amounts to about 4.26 percentage points. This relationship is robust to considering OECD and non-OECD samples separately. It is also (both qualitatively and quantitatively) robust to controlling for differences in human capital levels, labor productivity, trade union density, and international economic flows. We employ data from up to 125 countries during the 1970–2009 period to explore the relationship between globalization and labor share. Existing studies report a negative relationship between trade and investment flows and labor shares. While we also find that economic flows are often negatively related to labor shares, measures of social globalization tend to be positively related to labor shares. While greater mobility of goods and capital may be associated with increases in capital's bargaining power, all else equal, greater flows of information, ideas, and people may increase the bargaining power of workers.<br><br>
Original languageEnglish
Pages (from-to)18-35
JournalEuropean Journal of Political Economy
StatePublished - Mar 2018


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