By Paulina Restrepo-Echavarria, Economist, and Brian Reinbold, Research Associate
In a previous blog post, we discussed how there are different ways to measure the labor share, or the fraction of labor income over gross domestic product. In that post, we showed these different measures for several Latin American countries. In this post, we will look at the labor share for the Asian Tigers.
The figure below shows the labor share in Hong Kong, Japan, South Korea, Singapore and Taiwan. These countries experienced similar economic growth paths in the 20th century.
As the figure shows, the labor share varied widely among these countries. For some, it also shows considerable differences over time: The labor share in Hong Kong rose slightly, while it was relatively constant in Singapore and declined in Japan, South Korea and Taiwan.
However, as we demonstrated in our previous post, estimating the labor share can be challenging, and the results will vary depending on what assumptions are made.
Recall that having good estimates of self-employed labor income poses a challenge to estimating the labor share. Developing countries can be more sensitive to the assumptions made on self-employed individuals because a larger share of workers in developing countries are self-employed than in developed countries. The figures at the end of the post plot the labor share measured using five different assumptions for these East Asian countries.
In conclusion, assumptions on self-employed individuals can make a huge difference in estimating the labor share for developing countries. Also, data availability matters, too, as only Japan reports mixed-income data.
1 Mixed-income is total self-employed income. It contains both capital and labor income.
2 Feenstra, Robert C.; Inklaar, Robert; and Timmer, Marcel P. “The Next Generation of the Penn World Table,” American Economic Review, 2015, Vol. 105, No. 10, pp. 3150-82.
