This paper analyses the role played by the flexibilization of labour markets
on functional income distribution. Specifically, we analyse whether
employment protection legislation affects the evolution of labour income
share, measured by the size of compensation of employees as a percentage of
GDP, the sum of wages and salaries as a percentage of GDP and the size of
the adjusted wage share, in twenty European economies. Our study?s results
show that the evolution of labour income share is explained by the economic
growth, the growth of employment and unemployment rates, and the growth of
real wages. Regarding the role played by the flexibility of the labour
market, and specifically of the employment protection legislation, only
employment protection for temporary workers has a significant impact on the
evolution of labour shares. Our results show that stricter provisions on the
use of fixed-term and temporary agency contracts have a positive impact on
the growth of labour shares.
Labour market flexibilization and income distribution in Europe