Bargain your share: The role of workers bargaining power for labor share, with reference to transition economies

TL;DR

This paper investigates how workers' bargaining power affects the labor share in transition economies, revealing that increased bargaining power can lower the labor share due to structural changes like automation and market flexibilization.

Contribution

It introduces a novel share-capital schedule model and combines quantitative and qualitative indicators to analyze bargaining power's impact on labor share in transition economies.

Findings

Stronger bargaining power increases labor share in general.

In transition economies, higher bargaining power correlates with lower labor share.

Structural changes like automation influence the bargaining power-labor share relationship.

Abstract

The objective of the paper is to understand the role of workers bargaining for the labor share in transition economies. We rely on a share-capital schedule, whereby workers bargaining power is represented as a move off the schedule. Quantitative indicators of bargaining power are amended with own-constructed qualitative indices from textual information describing the legal enabling environment for bargaining in each country. Multiple data constraints impose reliance on a cross-sectional empirical model estimated with IV methods, whereby former unionization rates and the time since the adoption of the ILO Collective Bargaining Convention are used as exogenous instruments. The sample is composed of 23 industrial branches in 69 countries, of which 28 transition ones. In general, we find the stronger bargaining power to influence higher labor share, when the former is measured either quantitatively or qualitatively. On the contrary, higher bargaining power results in lower labor share in transition economies. This is likely a matter of delayed response to wage pushes, reconciled with the increasing role of MNCs which did not confront the workers power rise per se, but introduced automation and changed market structure amid labor-market flexibilization, which eventually deferred bargaining power-s positive effect on labor share.