The Korean Journal of Economic Studies
Analyzing Determinants of Labor Income Share Fluctuations in Korea
Hul Hwang (Sungkyunkwan University) and Sunghyun Kim (Sungkyunkwan University)Year 2019Vol. 67No. 4
AbstractThis study analyzes business cycle factors that affect the labor income sharein Korea. For the analysis, we employ a Bayesian dynamic stochastic generalequilibrium model with generalized CES production function, monopolisticcompetition, and investment adjustment costs. We include 7 exogenous shocksin the model (labor augmenting productivity shock, capital augmentingproductivity shock, markup shock, investment specific technology shock,preference shock, labor supply shock, government spending shock). TheBayesian estimation shows that the elasticity of substitution between productionfactors is 0.453, implying that the factor augmenting productivity shock andthe factor income share have a negative relationship. Variance decompositionreveals that the markup and labor augmenting technology shocks are moreimportant in explaining the short-run dynamics of labor income share, whilethe capital augmenting technology shock becomes more prevalent in the longrun. Historical decomposition shows that the labor augmenting technologyshock has been more effective in affecting labor income share than the capitalaugmenting technology shock since the global financial crisis. These resultscan provide policy implications on technology promotion that can affect thelabor income share more effectively.