Declining labor shares and bargaining power: An institutional explanation

Benjamin Bental, Dominique Demougin

Research output: Contribution to journalArticlepeer-review


We model the design of labor market institutions in an economy characterized by moral hazard and irreversible investment. In this setting, the environment setting affects the bargaining power of labor. At the optimum the allocation of bargaining power balances the aforementioned frictions. We examine the impact of improved monitoring and investigate the implication upon labor share, effort and investment. The model's predictions are consistent with recent decreasing labor shares and wages per effective labor units observed in most OECD countries. It is also consistent with rising labor productivity and declining ratio between effective labor and capital found in many of these countries.

Original languageEnglish
Pages (from-to)443-456
Number of pages14
JournalJournal of Macroeconomics
Issue number1
StatePublished - Mar 2010


  • Bargaining
  • Institutions
  • Irreversible investment
  • Labor share
  • Moral hazard
  • Productivity

ASJC Scopus subject areas

  • Economics and Econometrics


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