Investigating the Labor and Capital Contributions and their Effective Factors in Iran

One of the main issues in economy is the extent of labor and capital contributions in production of goods and services; since the contribution of production factors is a main step in economic planning and policy making that aim to reduce the class gap and income inequality. This study, following Piketty approach, investigates the labor and capital contributions for Iran`s economy during 1985-2014. In calculating the share of such factors, oil-based and non-oil-based GDP were taken into account. To achieve this objective, the effective factors on labor and capital contribution have been estimated using Auto-Regressive Distributed Lag (ARDL). The results indicate a direct relationship between minimum wage and labor productivity indices, and negative relationship of inflation rate, unemployment rate and profit margin of exchange rate with labor contribution in national income. Moreover, the results indicate a direct relationship between capital inventory and rate of return, and a negative correlation between inflation, capital price and gross domestic product with capital contribution in national income. The sign of oil-free model coefficients, except for the unemployment rate coefficient, are similar to those of the oil-based labor share model. Factors influencing the share of capital in national income are similar to those factors that affect the share of labor in income, despite the fact that the sign of the coefficients is different.