Labor Income Share in Asia by Gary Fields & Saumik Paul

Author:Gary Fields & Saumik Paul
Language: eng
Format: epub
ISBN: 9789811378034
Publisher: Springer Singapore

(0.351)

(0.399)

(0.791)

(0.473)

(0.570)

Observations

458

458

458

438

422

R-squared

0.422

0.208

0.533

0.220

0.301

Countries

51

51

51

49

47

The outcomes from Tables 7 and 8 provide mild support for the employment channel of the link between trade and labor income share. Trade affects firm productivity and employment through different channels. Differences in trade costs and trade imbalances (Smitkova 2018), lower cost of innovation with the availability of new foreign inputs (Goldberg and Pavcnik 2007), resource allocation through more productive firms through export opportunities and competition (Melitz 2003; Melitz and Ottaviano 2008)—such processes of trade adjustment also vary across countries and regions as countries open up and become a part of different trade agreements. All these point to the development of more capital-intensive technologies as the trade intensity increases, which in turn could cause a lower share of labor income if labor and capital are gross substitutes in the production function.

To conclude, the empirical evidence at the sectoral level does not allow us to claim any strong causal relationship between trade and labor income share. We find support for a negative correlation between trade openness and sectoral labor income share; however, the evidence on the relationship between the process of structural transformation and labor income share is at best mixed. Skill-biased structural transformation is likely to be positively correlated with the share of labor income predominantly in the service sectors.

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