What Explains Movements in the Labor Income Share in the Korean Economy?

Bae-Geun Kim (Assistant Professor, Department of Economics, Chung-Ang University)

The labor income share is a key indicator that shows the income distribution between capital and labor. This paper presents several measures of the labor income share in the Korean economy that make adjustments for the self-employed and industrial composition effects. It then shows that the degree of imperfect competition in both product and labor markets, such as firms’ market power and labor unions’ bargaining power, can influence the labor income share based on theoretical models. Empirical analyses, however, find that the degree of imperfect competition in product markets is more important in determining the labor income share than that of imperfect competition in labor markets.

JEL Classification Number: D33, E25

Keywords: Labor income share, Neoclassical theory of income distribution,Imperfect competition, Market concentration