Technological Advance and the Labour Share of National Income in the European Union

Abstract

This article tests the hypothesis that member states of the EU have been experiencing a declining share of labour income due to technological advance. It discusses factors that lead to the fall in the labour share, including technological advance, which is a tendency found in the capitalist system. We also identify the undesirable effects of a fall in the labour shares. The results of an econometric test conducted in our study, based on a labour demand equation that was derived from the CES production function, confirm the hypothesis that technological progress negatively affected the labour share of income, everything else remaining constant. This finding has important implications for EU Member States, namely that some form of policy intervention would seem to be necessary, as technological progress could lead to a continuing fall in the share of labour income if left to its own devices.

The Labour Share, Government Expenditure and Income Inequality of Post-Soviet Countries

“…The recent literature on the decrease in labour shares has concentrated on examining various factors, including globalisation's influence (Decreus and Maarek 2008;Maarek 2012;Brada 2013;Kramarz 2017;van Treeck and Wacker 2020;Tian et al 2022), development of financial capitalism (Pariboni and Tridico 2019;Alexiou et al 2022;Khan et al 2022), high natural resource rents (Brada 2013;Al-Marhubi 2021), and technological and structural change (Briguglio and Vella 2016;Acemoglu and Restrepo 2018;Koh et al 2020). In the global economy, capital (especially portfolio investments) is becoming more mobile than labour, which lowers the bargaining power of workers in the home country because it takes into account the lower wages that are available in other countries where the owner of the financial or physical capital can move his production (Hummels et al 2014;Kramarz 2017;O'Mahony et al 2021;van Treeck and Wacker 2020;Diwan 2001;Braakmann and Brandl 2021).…”

“…In the global economy, capital (especially portfolio investments) is becoming more mobile than labour, which lowers the bargaining power of workers in the home country because it takes into account the lower wages that are available in other countries where the owner of the financial or physical capital can move his production (Hummels et al 2014;Kramarz 2017;O'Mahony et al 2021;van Treeck and Wacker 2020;Diwan 2001;Braakmann and Brandl 2021). Technological progress also augments capital and decreases the labour share (Briguglio and Vella 2016;Guimarães and Mazeda Gil 2022). In addition, the automation of jobs leads to increased losses of jobs in middle-skilled occupations (Autor and Dorn 2013;Autor et al 2016).…”

Innovation and social welfare: A new research agenda

“…The utility function does also assume concavity with respect to t, which represents the idea that households tend to smooth consumption patterns over the life cycle, preferring a stable consumption over time rather than one with strong fluctuations (see, e.g., Romer, 1990: S88;Aghion & Howitt, 1992: 327;Barro and Sala-y-Martin, 2004: 87). 5 Empirical evidence on the relationship between technological change and the labor income share is presented among others by Briguglio and Vella (2014), Charalampidis (2020) and Kim and Kim (2020). Zuleta and Young (2013) and Mendieta-Muñoz et al (2021) show that the decline of labor share of income is however driven by innovations within manufacturing industries, and not in the service sectors.…”

“…55Empirical evidence on the relationship between technological change and the labor income share is presented among others by Briguglio and Vella (2014), Charalampidis (2020) and Kim and Kim (2020). Zuleta and Young (2013) and Mendieta‐Muñoz et al.…”