Determinants of the Labor Share: Evidence from a Panel of Firms

This paper analyzes the sources of labor share variations and its general downward trend, observed recently in most European economies. Using a unique quarterly firmlevel panel dataset from the Polish enterprise sector in the period 1995–2008, we quantify the impacts on the observed variation in labor shares of (i) firms’ “demographics” including firms’ age as well as their entry and exit behavior, (ii) selected labor market characteristics such as newly filled vacancies, labor market tightness, and human capital measures, (iii) firm- and sector-level measures of export intensity, competition, and ownership structure, and (iv) shifts in the sectoral make-up of GDP. We also test the potential cross-effects among these variables. We conclude that while sector-specific factors, changes in the ownership structure, and the accumulation of human capital explain a large fraction of the observed downward trend in the labor share, labor market characteristics, market structures and firm demographics are robust correlates of labor share changes at high frequency.