Estimating labor income shares at the sectoral level in Korea during 1975-2018 using input-output tables

Abstract

The goal and contribution of this paper is to estimate the sectoral labor income shares in Korea with the same methods over a long period. For this purpose, I harmonized the input-output (IO) tables of Korea for the period 1975-2018 according to a common 26-sector classification, and applied various methods for computing labor income shares to the variables available in IO tables and the accompanying employment tables. It is expected that the results of this paper can be utilized in a variety of studies. In this paper, three methods were applied. First method is to use compensation of employees (CE), the narrowest definition of labor income, as the labor income. Second method is to assume that the average labor income of non-wage workers equals the average wage level of employees. Third method is to estimate the average labor income of non-wage workers using micro survey data. All three methods use domestic income (DI), the sum of CE and operating surplus (OS), as the total factor income. In this paper, I used the estimates by Im (2020) for the third method. The economy-wide labor income share by the first method is highly close to the official income share published by the Bank of Korea, and is believed to underestimate the true labor income share. On the other hand, the share by the third method is expected to highly overestimate the true value. The accuracy and the reliability of the estimated shares can be greatly improved by estimating the relative average labor income share of non-wage workers more thoroughly based on more accurate survey data.