Employment protection legislation and labour income shares in Europe

The paper analyses the determinant elements of the evolution of labour income share, measured by the size of compensation of employees as a percentage of GDP in twenty European economies. In doing so, special attention is paid to the impact of employment protection legislation. Our study?s results show that the evolution of labour income share is explained by the economic growth, the growth of employment and unemployment rates, and the growth of real wages. Regarding employment protection, only employment protection for temporary workers matters. Our results shows that stricter provisions on the use of fixed-term and temporary agency contracts have a positive impact on the growth of the labour shares.