Measuring the Labor Share for Poland – Does Heterogeneity of Labor Compensation Matter?

Abstract

The measurement of the labor share is subject to a bias due to the income of self-employed (the mixed income). The aim of this study is to address this bias using a number of assumptions. We present our results for Poland, where both the self-employed and mixed income have high shares in employment and value added, respectively. In our calculations we account for the differences in socio-demographic characteristics of populations of both employees and self-employees and the differences in tax rates. The latter is our original contribution to the issue of measurement of the labor share. We show that in Poland, the correction of raw labor share with a fraction of mixed income increases labor share by an average of 8-13%, with the most reliable estimates being in a lower part of the
range. Moreover, the treatment of the self-employed in agriculture is important. We also show that the corrections applied amplify the upward tendency in the labor share, observed since 2012. There are differences in sectoral labor shares – downward tendencies of labor shares dominate in manufacturing and other industries, whereas upward tendencies dominate in services. The shift-share decomposition revealed that the changing structure of the economy was roughly neutralized by the reallocation effect and the economy-wide movements are generated mostly by the within sector changes of labor shares.