Do Democracies Pay Higher Wages?

The labor share of income—the proportion of national output that accrues to workers through wages, salaries, and benefits—has been declining over the past 50 years. This trend reflects an imbalance in the distribution of gains from economic growth, with workers and capital owners benefiting unequally. Much of the literature has overlooked how regimes shape the functional distribution of these gains between labor and capital. In this paper, I advance a theoretical framework that explains how democracy enhances workers’ relative organizational power and strengthens distributive mechanisms in the economy. By situating labor share dynamics within broader institutional contexts, this study contributes to debates on inequality and demonstrates how political regimes shape the distributive consequences of capitalism.