Abstract
The relationships which link real wages, capital intensity and factor shares are tested as a prelude to tests of the relationship between wage rigidities and labour market institutions. Evidence from seven countries indicates that the evolution of factor shares is well explained by changes in capital intensity, which is itself well explained by product wages and technical progress. A key implication is that changes in full employment capital-labour ratios have been the dominant reason for the longer-run decline of profit shares in Europe and Japan relative to the United States. It follows that changes in cyclically adjusted factor shares provide little or no information regarding the gap between the actual real wage and its full employment value.
I am grateful to the discussants and other conference participants, as well as to Claude Felteau, Claude Fluet, Pierre Mohnen and Brian Scarfe for useful comments on an earlier draft of this paper. I am also grateful to Philippe Laheurte for his very able research assistance and to FCAC for financial assistance.
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© 1986 The Scandinavian Journal of Economics
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McCallum, J. (1986). Wage Gaps, Factor Shares and Real Wages. In: Calmfors, L., Horn, H. (eds) Trade Unions, Wage Formation and Macroeconomic Stability. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-08596-5_20
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DOI: https://doi.org/10.1007/978-1-349-08596-5_20
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