The dynamics of labor share decline in manufacturing: Evidence from Indonesia

Riandy Laksono and Arianto Patunru

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: Labour share of income in developing economies has generally declined with increased engagement in international trade, raising concern about adverse distributional consequences of trade for workers. Using a panel dataset of Indonesian manufacturing firms from 1990 to 2015, we evaluate how trade affects the dynamics of labor share from a micro-level perspective. We find that trade liberalization contributes to declining labor share, mainly by shifting market share towards better-performing firms with already-low labor share. While this is in line with the superstar firm framework, such model fails to characterize the labor share dynamics in a developing economy like Indonesiawhere aggregate markups and concentration do not rise. Instead, this study supports a trade-based explanation for labor share decline.

JEL-codes: F61 F63 F66 J30 (search for similar items in EconPapers)
Pages: 90 pages
Date: 2024
New Economics Papers: this item is included in nep-int and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2024-3

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