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

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.