The Reasons Behind the Declining Labor Share of Income : A Special Case for MENA Countries

The determinants of the labor share of national income have been investigated by numerous studies. However, there is no consensus for what exactly affects the income differentials of workers, especially after the triumph of neoliberal policies prevailed after 1980s across all countries, including both developed and developing economies. While this is especially the critical issue for advanced countries, many developing economies have been noticed the importance of an increasing income gap between capital and workers. This paper seeks out the causes of a decreasing labor's share in case of MENA countries, which are mostly classified as middle-income countries and are to a large extent categorized in developing group of countries, over the 1992 2013 period. To understand the reasons behind this decline in income shares of workers, the analytical context focuses on two major factors which are basically hinged on macro-level issues: (i) financial liberalization and (ii) financial development. The results show that financial liberalization is not sufficient for an increase in labor's share but also the necessary level of development in financial markets and institutions should be implemented over time. In other words, in the context of selected MENA countries, the positive effects of financial liberalization on the labor share of income are only possible with a simultaneous increase in the degree of financial development in case of both depth, access, and efficiency