EMPIRICAL EVIDENCE ON DIVERSE FACTOR SHARES ACROSS EU COUNTRIES

The paper challenges the traditional assumption of stable factor shares introduced in the Cobb-Douglas production function. We analyse factor shares for 20 EU countries among 1995 – 2015 and find evidence for differences in labour shares across both countries and time. On the example of Slovakia, we demonstrate the impact of using different factor shares on output gap estimates quantified to reach up to 0.6 percentage points. Our research also confirms a positive correlation between the degree of economic development and relative labour shares.