Demographic changes and the labor income share

Hippolyte d'Albis (1, 2) , Ekrame Boubtane (3, 4, 1, 2) , Dramane Coulibaly (5)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques
3 CERDI - Centre d'Études et de Recherches sur le Développement International
4 INED - Institut national d'études démographiques
5 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne

In this article, we study the impact of demographic changes on the inequality between capital and labor incomes. More precisely, we analyze the impact of exogenous changes in both the rate of natural increase and the net migration rate on labor income as a share of total income. We estimate a structural vector autoregression (VAR) model on a panel of 18 OECD countries with annual data for 1985–2018. We find that the response of the labor income share to an exogenous change in the rate of natural increase is significantly negative a few years after the shock, whereas its response to an exogenous change in the net migration rate is significantly positive. This suggests that in addition to the factors usually introduced in the literature, demographic factors play a role in the observed variation in the labor income share.

Keywords: Natural increase; International migration; JEL classification: E20; Labor income share; F22; J61 International Migration; Natural Increase; Labor Income Share

Domains: Economics and Finance

Hippolyte d'Albis, Ekrame Boubtane, Dramane Coulibaly. Demographic changes and the labor income share. European Economic Review, 2021, 131, pp.103614. ⟨10.1016/j.euroecorev.2020.103614⟩. ⟨hal-03038638⟩