Abstract

Since the beginning of the 1980s, most industrial and emerging market economies show a persistent decline in the macroeconomic labor share, i.e. in the share of wages relative to total income. While economic theory tries to explain this downward trend with declining capital cost, the specific role of digitalization as one of the most important global trends in recent decades has not been fully considered yet by economic research. In this respect, two effects are particularly relevant. First, information and communication technology (ICT) substitutes human labor by an increasing degree. Second, this development differs from earlier phases of industrialization in its consequences for labor market segmentation: due to the intensive use of ICT, especially routine occupations at a medium wage level are replaced which constitute the largest share in the wage sum. Our analysis aims at quantifying the effects of declining ICT cost on the macroeconomic labor share by means of a multi-country panel dataset. We consider the role of different institutional factors like employment protection and wage coordination as well as country-specific characteristics of the labor market like skill level and share of routine occupations, both across time and countries.