The labour share of income: heterogeneous causes for parallel movements?

The distribution of factor incomes from a macroeconomic perspective is an increasingly popular research topic—be it for its
implications for the personal income distribution or the apparent mistake in previous research declaring it to be constant
over time. The labour share has been decreasing across OECD countries since the 1980s, sparking a renewed interest in what
is behind this trend. The aim of this paper is to take a systematic approach to estimating the coefficients of factors explaining
these movements across countries. In particular, we focus on proper dynamic model specification and test the validity of the
homogeneity assumption of slope coefficients frequently implied in previous studies. We employ fixed effect estimators as
well as pooled mean group and mean group estimators, the latter in a dynamic heterogeneous panel framework. We find support
for a dynamic estimation setup and derive statements regarding the homogeneity assumption with respect to the three most prominent
explanatory variables in the literature: the capital-output ratio, total factor productivity and trade openness. We find the
first two variables to decrease the labour share, to be better captured by dynamic estimators and to be better identified
in more recent time periods. With regard to trade, we see it depressing the labour share since 1980 only. We furthermore provide
evidence on increased cross-country homogeneity over time for all of the analysed driving forces of the labour share.