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September 13, 2013 at 7:05 AM
One economist on why labor’s share of income is falling
Labor’s declining share of U.S. income is cited in political discussion as if its meaning were obvious: that specific policies, such as the “neoliberalism” of the Reagan administration of 30 years ago, or favoritism toward corporate interests, had tilted the balance in favor of capital, and that this is part of the growing inequality of American life.
First off, the share of national income to “labor” includes the work of all people in paid work, including corporate CEOs. It includes not only their salaries but their benefits, including stock options. For the statisticians, everyone who works is doing “labor.” The inequality within labor is a different question.
The declining share to labor is about all wages and salaries, high and low, as a share of all income. Most national income still goes to labor, but the share has been drifting downward for several decades.
Taylor says the trend is not exclusive to the United States. It’s happening around the world. Writes Taylor: “Looking for a ‘cause’ based on some policy of Republicans or Democrats in the U.S. almost certainly misses the point.”
One possible explainer, Taylor says, is globalization, which he says has reduced the bargaining power of labor. (I’m not so sure of this. Globalization has reduced the bargaining power of less-skilled labor in wealthier countries. I think it has increased the bargaining power of labor in poorer countries. It has certainly been good for workers in China.)
As labor’s share (still the largest) contracts in America, other, smaller components of national income have risen: more company money spent on “short-lived capital” such as computers and software; increasing dividends to stockholders and rising profit levels generally. Some of that (the dividends?) may be accounted for by the increasing percentage of retired Americans living on pensions and investments.
(Hat tip: Tyler Cowen at Marginal Revolution.)