Labor’s Share of National Income Is Falling

The latest issue of the Economist shows quite dramatically in the article “Labour Pains” that labor’s share of national income is dropping.  In the U.S. workers’ wages have historically been about 70% of GDP.  In the early 1980s this figure started falling and is now 64%.  Similar declines are occurring in many other countries.
This phenomenon is closely related to what others are observing as I have reported recently.  Tyler Cowen’s new book “Average is Over” discusses the threat of technology to the middle class.  Daniel Alpert in “The Age of Oversupply” talks about the increase of competition from various global forces.  Stephen King’s “When the Money Runs Out” makes the case that “a half-century of one-off developments in the industrialized world will not be repeated.”
Historically the stability of the wage to GDP ratio “provides the link between productivity and prosperity.  If workers always get the same slice of the economic pie, then an improvement in their average productivity – which boosts growth – should translate into higher average earnings. … A falling labour share implies that productivity gains no longer translate into broad rises in pay.  Instead, an ever larger share of the benefits of growth accrues to the owners of capital.”
A shrinking share of a GDP which itself is slowing down is a double whammy.  The only way to address the problem effectively is to deal with the root causes.
First of all, we need to boost overall economic growth by the proven methods of broad based tax reform, especially including much lower corporate tax rates, making regulations less onerous, carrying out immigration reform, and giving special attention to helping entrepreneurs create new businesses.
How can we, additionally, help low skilled and low waged workers move up the ladder?  Long term the most worthwhile action is to change K-12 education by putting more emphasis on career education to produce more highly skilled workers.  Short term, we should provide crash job training for the estimated three million current job openings in the U.S. which require skilled workers.
Economic inequality in the U.S. is becoming progressively worse all the time.  There are fiscally sound ways to address this alarming problem and it is important that they be clearly and forcefully advocated.

2 thoughts on “Labor’s Share of National Income Is Falling

  1. The fall of these wages has been forseen. Technology advances and the work of 10 is now performed by one.

    Huge companies run their people into the ground stripping their benefits and trimming their wages all to make a profit. Instead of giving the companies a tax break they should take an inventory of their work staff. Do they know them or are they simply worker number 123?

    The state of our humanity is dangerously dropping. Our sense of caring for our own (think employers to employees) has been replaced with how much can we squeeze from them to show a profitable quarter.

    People are incorrectly emphasizing more or less money for us and them. I emphatically say no more! What about looking to what resources we already have? Investing in our people and strengthening the companies foundation in confidence and true integrity. Restoring human identity and decency.

    Tax reform from either liberal or conservative perspective is either rob from the rich and give to the poor or trickle down economics. Neither are prosperous for all. Consider this, the Federal government cannot make it with the 33.5% they have from our paychecks under current practices. My church became debt free and have been self sufficient since the 1920’s with only donations from 10% of the members’ earnings. Unless the leaders of this nation, industry, communities, and homes practice and exhibit human kindness and decency and moral courage all the scientifically proven methods of fiscal prosperity don’t mount to a hill of beans.

  2. You’ve made a strong statement and you’re very passionate about it. My basic response is that we can’t expect our government to be anywhere near as well run as a church. The U.S. has the highest standard of living in a global economy. American businesses have to operate very efficiently to compete with the rest of the world. The more successful a business is, the better it can treat its own employees. An incredibly complicated society like ours will inevitably have a complex and impersonal mode of laws and government.
    As individuals the best we can do is to try to contribute to progress within our own sphere of influence. I personally think that the biggest threat to America’s future is the fiscal irresponsibility of our federal government. This is what motivated me to set up this blog just one year ago and keep it going. I am completely focused here on how to shrink the deficit down to zero as quickly and relatively painlessly as possible. I try to think about what to do in an objective and non-ideological way. There are many, many important and urgent societal problems which I ignore (in the blog) because they don’t have a big fiscal component.
    This is the best I can do to respond to your very well stated concerns!

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