Labor share of income vs. Regulatory quality
Holds up after adjusting for income
Across 136 countries, Labor share of income and Regulatory quality rise and fall together at r = +0.16 (on a scale from −1 to +1, where 0 means no link). It holds up almost unchanged when only countries with similar income (GDP per person) are compared (r = +0.23, q = 0.041, allowing for the many pairs tested).
Comparing countries across the middle half of labor share of income, 42.5% to 58.6% of GDP, regulatory quality is better by 0.182 points at the top of that range than the bottom. Comparing only countries with similar national income, the gap is 0.164 points.
Link before adjusting (r)+0.156p = 0.069 · 136 countries
After adjusting for national income+0.234p = 0.006 · likely range [+0.07, +0.39]
p, allowing for regions0.004standard error 0.051 · 7 regions
Check for luck (q)0.041across 18,622 pairs
How to read these.r runs from −1 (one goes up as the other goes down) to +1 (they rise together), and 0 means no link. Adjusting for national income means comparing countries with the same GDP per person, so differences in wealth can’t explain the link. Income is used in percentage terms, since an extra $1,000 means more to a poor country than to a rich one. p is how likely a link this strong would be if there were really none. Below 0.05 means it is unlikely to be chance. Very small values are written in short form: 1.1e-32 means a decimal point followed by 31 zeros and then 11, so very close to zero. The likely range is where the true figure probably lies, and a range that crosses zero means the link could easily be chance. Countries in the same region tend to resemble each other, so the third figure allows for that, which gives a fairer p. The standard error is the typical size of the error in r. Finally, testing this many pairs means some will look strong by luck alone. A q below 0.05 means this link is unlikely to be one of those.
Labor share of income · % of GDPlink with income +0.08 · independent
Regulatory quality · index (approx. -2.5 to 2.5)link with income +0.83 · proxy
“Link with income” is how closely each measure tracks GDP per person across countries, from −1 to +1.
Every country as a dot
best-fit line line after adjusting
Four ways to measure the link
| Method | r | p | Countries |
|---|---|---|---|
| Standard (Pearson), not adjusted | +0.156 | 0.069 | 136 |
| By rank (Spearman), not adjusted | +0.184 | 0.032 | 136 |
| Standard (Pearson), adjusted for national income | +0.234 | 0.006 | 136 |
| By rank (Spearman), adjusted for national income | +0.214 | 0.013 | 136 |
The rank version uses only each country’s place in line, from lowest to highest, so a few extreme countries count for less. The adjusted and unadjusted versions use the same 136 countries: those that report both measures and GDP per person. So the gap between them comes from the adjustment, not from a change in which countries are counted. Drop in the size of r after adjusting: -0.078 (a minus sign means it grew).
How solid is it?
Leaving out one country at a time, r ranges from +0.205 (without RWA) to +0.259 (without BLR). The bar above shows that range on a scale from −1 to +1, with the solid line at the full result. The single country that moves r most: RWA (-0.029).
Within each region
Countries are not separate, unrelated cases, and neighbors share a lot. A link that holds inside each region is far more believable than one that shows up only when comparing regions.
| n | r | ||
|---|---|---|---|
| East Asia & Pacific | 15 | +0.42 | |
| Europe & Central Asia | 46 | +0.11 | |
| Latin America & Caribbean | 24 | +0.48 | |
| Middle East, North Africa, Afghanistan & Pakistan | 15 | +0.28 | |
| Sub-Saharan Africa | 31 | +0.15 |
By income third
If the link shows up only in the richest third of countries, it is a feature of rich countries, not a general pattern.
| n | r | ||
|---|---|---|---|
| Poorest third | 46 | +0.18 | |
| Middle third | 45 | +0.14 | |
| Richest third | 45 | +0.33 |
By largest religious group
Countries grouped by a label they share, such as main religion, rather than by a number. Groups of fewer than twelve countries are not shown. These groups differ in income, region and history all at once. So a gap between them is a place to start asking questions, not an answer.
| n | r | ||
|---|---|---|---|
| Christians | 84 | +0.28 | |
| Muslims | 33 | -0.10 |
By last European coloniser
Countries grouped by a label they share, such as main religion, rather than by a number. Groups of fewer than twelve countries are not shown. These groups differ in income, region and history all at once. So a gap between them is a place to start asking questions, not an answer.
| n | r | ||
|---|---|---|---|
| France | 16 | +0.28 | |
| Never a European colony | 16 | +0.30 | |
| Spain | 18 | +0.02 | |
| United Kingdom | 34 | +0.42 |
By official ideology
Countries grouped by a label they share, such as main religion, rather than by a number. Groups of fewer than twelve countries are not shown. These groups differ in income, region and history all at once. So a gap between them is a place to start asking questions, not an answer.
| n | r | ||
|---|---|---|---|
| Nationalist | 18 | -0.23 | |
| No strong official ideology | 92 | +0.33 |
By party system
Countries grouped by a label they share, such as main religion, rather than by a number. Groups of fewer than twelve countries are not shown. These groups differ in income, region and history all at once. So a gap between them is a place to start asking questions, not an answer.
| n | r | ||
|---|---|---|---|
| A few parties banned | 18 | -0.25 | |
| No parties banned | 100 | +0.23 |
Without outliers (countries far outside the middle half of countries on either measure, by more than one and a half times the width of that middle half): r = +0.255 after dropping 2 countries.
Two series, one country
Both measures over the years for one country you pick. The two charts are stacked so they share only the years along the bottom.
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Over time, within countries
Everything above compares countries with each other at one moment. This section compares each country only with itself over 28years. So a link here can’t come from anything about a country that stays the same, such as its history, geography, institutions or culture.
Within countries over time, there is no link that is clearly more than chance (r = +0.018, comparing each country only with itself over the years, and each year only with the same year elsewhere). Whatever the cross-country picture shows, countries whose labor share of income moved did not tend to see their regulatory quality move with it.
Across countries (adjusted)+0.234for comparison
Within countries-0.058each country vs itself
…and vs the same year elsewhere+0.018q = 0.873 · 138 countries
Year-on-year changes+0.002q = 0.964
Read with care.
- Almost all of this indicator's variation is between countries, not within them, so the within-country estimate rests on a small part of the data.
3,445 country-years (one country in one year), 138 countries, 1996–2023, about 25 years each on average. Share of the variation that happens within countries over time: 9% for Labor share of income, 6% for Regulatory quality. The margins of error allow for each country appearing many times, and for each year’s value being close to the year before.
Year-to-year changes are a cautious test, not a final answer. Looking only at changes from one year to the next removes each country’s own trends. But it also makes measurement mistakes louder, which pulls the results toward zero. A near-zero result here is weak evidence of no link, not proof.
With one measure years behind the other
Same year (lag 0): +0.018. A peak away from zero does not show which comes first. These series change slowly — this year’s value is close to last year’s. That makes the curve smooth and nearly symmetric, whatever produced the data. Even a sharp peak at one lag (a gap of some years) would not prove that one measure changes the other.
This curve peaks at the edge of the window (lag +10), so it is still drifting where the search stops. That pattern usually reflects a slow trend left over in the data, not a link with real timing. The peak value should not be read as the “true” link at the right lag.
The data
% of GDP | index (approx. -2.5 to 2.5) | Years | |
|---|---|---|---|
| Barbados BRB | 75.1% | 0.394 | 2023, 2025 |
| Rwanda RWA | 74.1% | 0.255 | 2023, 2025 |
| Sao Tome and Principe STP | 73.8% | -0.939 | 2023, 2025 |
| Albania ALB | 70.5% | 0.3 | 2023, 2025 |
| Bosnia and Herzegovina BIH | 67.1% | -0.404 | 2023, 2025 |
| Lesotho LSO | 66.1% | -0.488 | 2023, 2025 |
| Canada CAN | 65.9% | 1.44 | 2023, 2025 |
| Switzerland CHE | 65.3% | 1.68 | 2023, 2025 |
| Aruba ABW | 64.5% | 0.975 | 2023, 2025 |
| Cameroon CMR | 64.4% | -0.787 | 2023, 2025 |
| Germany DEU | 63.7% | 1.22 | 2023, 2025 |
| Serbia SRB | 63.7% | 0.0572 | 2023, 2025 |
| Sudan SDN | 63.5% | -1.74 | 2023, 2025 |
| Djibouti DJI | 63.4% | -0.871 | 2023, 2025 |
| Slovenia SVN | 63.3% | 0.661 | 2023, 2025 |
Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), "The Next Generation of the Penn World Table", American Economic Review, 105(10), 3150-3182, www.ggdc.net/pwt. Data: Penn World Table version 11.0, Groningen Growth and Development Centre, doi:10.34894/FABVLR.
Kaufmann, D. and A. Kraay, Worldwide Governance Indicators, World Bank
Sources
Labor share of income
Labor share of GDP (Penn World Table)
Groningen Growth and Development Centre, University of Groningen · via DataverseNL · CC BY 4.0 · updated irregular (new versions every few years)
The share of a country's income (GDP) that is paid to people for their work: wages, salaries and benefits, plus an estimate of what the self-employed, such as farmers and shopkeepers, earn for their work. The rest goes to the owners of land, buildings and machines as profit, rent and interest. Where there is little data on the self-employed, the Penn World Table fills in a value by a fixed rule, so figures for poorer countries are rougher, and a few countries show the same value every year. No "better" direction is set.
How this was computed
Data used: most recent value in 2010-2025; values come from 2023–2025. To adjust for income, each measure is first predicted from GDP per person (in percentage terms, on a log scale) with a straight-line fit. Only what is left over is then compared. This is called a partial correlation. The line is drawn the standard way (ordinary least squares), which picks the line that comes closest to all the countries at once. The error margins allow for countries in the same region resembling each other, using 7 World Bank regions. The q-value corrects for testing all 18,622 pairs at once, using the Benjamini–Hochberg method. Underlying data last updated V-Dem v16; V-Party v2. How the country data works · explore Labor share of income and Regulatory quality
This page shows that two measures go together. It does not show that Labor share of income changes Regulatory quality, or the reverse. These figures also describe countries, not individual people. See the ecological fallacy.
More links with Labor share of income or Regulatory quality
- Legal system and property rights (Fraser) vs Regulatory quality before +0.93 → after adjusting +0.81
- Corruption Perceptions Index vs Regulatory quality before +0.90 → after adjusting +0.79
- Economic freedom (Fraser) vs Regulatory quality before +0.85 → after adjusting +0.72
- Light regulation (Fraser) vs Regulatory quality before +0.82 → after adjusting +0.71
- Political corruption vs Regulatory quality before -0.80 → after adjusting -0.60
- Gender Inequality Index vs Labor share of income before -0.25 → after adjusting -0.57
- Labor share of income vs Religion very important before -0.53 → after adjusting -0.57
- Freedom to trade (Fraser) vs Regulatory quality before +0.78 → after adjusting +0.55