The Decline of Labour Share in New Zealand

Abstract

The share of national income going to labour in New Zealand declined between the 1970s and the early 2000s. We argue that the majority of this decline can be attributed to institutional changes within the public market sector that began in the late 1980s. Corporatization (and in some cases privatization) re-orientated the enterprises away from a broad range of social and trading objectives towards generating profit for shareholders. The reforms thereby led to an increase in capital services and a corresponding decrease in the observed labour share in the public market sector. Using shift-share analysis we show that this decrease in the labour share of the public market sector accounts for the vast majority of the decline in economy-wide labour share. We also conjecture that a substantial proportion of the sharp increase in income inequality in New Zealand between the mid-1980s and the mid-1990s can be attributed to these institutional changes.