Development and the Labor Share

A U-shaped relationship between development and the labor share of income is brought to light. To do so, a panel dataset on the labor share in the manufacturing sector of developing countries is exploited. This dataset has greater coverage than the ones of previous studies focusing on developing countries. These data are also available at the disaggregated level for 28 manufacturing subsectors. This allows us to show that the U-shaped pattern of the labor share is also observed at the subsector level, suggesting that it does not correspond to reallocation forces across manufacturing subsectors during the development process. Standard theories of development economics that feature duality in the labor market easily generate such a pattern.