Labour Income Share, Market Power and Automation : Evidence from an Emerging Economy

The macroeconomic implications of declining labour income share across several economies are of serious concern. This study examines the relationship between labour income share and its key drivers: market power, capital intensity and automation. The study uses data on Indian firms from 2013 to 2021.The relationship is analysed by employing panel fixed effects and method of moments panel quantile estimators. The results indicate that market power is significantly and negatively associated with the labour share of income. Similarly, capital intensity and automation have a positive impact on the labour income share. Estimates of quantile regression reveals that the influence of market power becomes more pronounced at higher quantiles of the labour share. Our results indicate complementary nature of labour and capital