‘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 supplemented with self-constructed qualitative indices derived from textual information describing the legal environment enabling bargaining in each country. Due to multiple data constraints, we employ a cross-sectional empirical model estimated using instrumental variables (IV) methods, where former unionization rates and the time since the adoption of the ILO Collective Bargaining Convention serve as instruments. The sample comprises 23 industrial branches across 69 countries, including 28 transition economies. In general, we find the stronger bargaining power to influence higher labor share, when the former is measured either quantitatively or qualitatively. Conversely, higher bargaining power is associated with a lower labor share in transition economies. This is likely a matter of delayed response to wage pushes, a function of the structural transformation of transition economies, and 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.