Has fallen and it can’t get up, according to Michael Elsby, Bart Hobijn, and Aysegul Sahin.
the decline of the labor share, which has been driven by a decline in the share of payroll compensation in national income over the last 25 years, is likely due to the offshoring of the labor-intensive component of the U.S. supply chain.
Pointer from Tyler Cowen. I have called this the Great Factor-price Equalization.
If your model of a recession is that it is caused by sticky wages, then as far as I can tell labor’s share of income should rise during a recession. Or, to put it another way, if labor’s share falls (as it has during this recession), then makes the sticky-wage story less attractive. Labor’s share of income can be written as WL/PY, where w is the wage, L is employment, P is the price level, and Y is real GDP. We can re-write this as (W/P)(L/Y), or the real wage times the average productivity of labor. I labor’s share falls, then either real wages have fallen or productivity has risen. If real wages have fallen, then this directly contradicts the sticky-wage story. If real wages have risen, then productivity has risen faster, and I still have doubts about the sticky-wage story.
If lower productivity workers get fired first then observed average productivity should go up in recessions. Given that unemployment increased the most for low skilled workers, this seems plausible.
Ever since Colin Clark developed the statistical concept of “National Income,” there has been a tendency to use that statistic as one of the principal measures of the distribution of goods and services within developed economies.
Are there any current studies that approach those measures from the standpoint of costs. That is, what costs are incurred in the production and distribution of goods and services, and how are those costs allocated between, say, labor and capital.
Is it possible that more and more capital has become sequestered (and not redeployed) in the accumulated surpluses of large business enterprises; or has been consumed in the operational functions of governments, including wars as well as social policies? Are there larger demands, dispersed over a variety of economies of greater or less efficiency, for the uses of capital? Have the forms of capital changed (and hence the cost of their use) with developments in technologies?
Have we wasted or destroyed a great deal of the previously accumulated surpluses that provide or renew the sources of capital?
In examining any productive enterprise those two items are regarded as costs; the costs of labor and the costs of capital.
So why is it in “Macroeconomics” there is this concentration on the statistics of the position of the costs of labor (and presumably the costs of Capital) considered from a standpoint of “income?”
Could we not profit from a change in approach to the examination of the factors affecting comparative costs, rather than distributions of incomes?
If the percentage of total national income going to capital is rising, why does my portfolio still look like garbage?
Two possible answers:
From Lewis Carroll – “we have to run as fast as we can to stay where we are!”
Perhaps your portfolio does not contain the kinds of assets that qualify for larger returns as “productive” capital.
“Reported Earnings” of an enterprise (remember, reporting earnings is not the same thing as making money) may be your predominant criteria, rather than return on assets.
Labor share should only rise if employment is unchanged which it isn’t. Sticky wages and prices are nominal so real wages can decline somewhat without increasing labor share, but even if they are sticky within an industry or trade, they are not across industries and trades, so when a customer service worker becomes a fast food worker their wages can fall, and when the largest growth is in fast food, labor share can fall. Rising profits and stagnating wages are rising productivity.
Arnold,
I think that should read “the real wage divided by the average productivity of labor.”