The Link between Productivity and Labour Share – The Case of North Macedonia and Slovenia

Abstract

The large divergence between productivity and workers’ incomes has been becoming a reality in most countries, not just in the United States after 1980s, where labour productivity grew faster than real wages and employment. The breakdown according to Brynjolfsson and McAfee (2014) is due to technological progress, according to Bivens and Mishel (2015) the growing inequality and according to Baker (2007) the declining labour share in GDP. The main goal of this paper is to find out if the global trend of “The Great Decoupling” between productivity and labour share is a real process in the case of the countries analyzed from the Southeast Europe region. Given that Slovenia is among the most developed countries, while North Macedonia belongs to the group of developing countries that in these stages of development rely on foreign capital and cheap labour, we examine whether the process of “The Great Decoupling” between productivity and labour share is a reality in both countries. From the analysis of the trend of the movement of the average labour productivity of these two countries, it can be concluded that in both countries there is a trajectory of the movement of the labour productivity. Also, from the trend of the movement of the share of labour income and labour productivity in the case of Slovenia and North Macedonia it can be concluded that they indicate the existence of a large gap, i.e. divergence in the trajectory of motion. Also, the gap between labour productivity and the share of labour income in GDP on the example of North Macedonia, if compared to the example of Slovenia is of lower intensity. Finally, based on the results obtained from the conducted econometric analysis, we determine whether there is a need for further research or the phenomenon is a temporary deviation in the dynamics of the gap between labour share and labour productivity.