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by Leith van Onselen
April 11,
2017
from
MacroBusiness Website
From the
IMF Direct blog comes an
interesting analysis of the declining share of income going to
workers, which is being driven by
automation and
globalization:
After being
largely stable in many countries for decades, the share of
national income paid to workers has been falling since the
1980s.
Chapter 3 of the April 2017 World Economic
Outlook finds that this trend is driven by rapid progress in
technology and global integration.
Labor's share
of income declines when wages grow more slowly than
productivity, or the amount of output per hour of work.
The result is
that a growing fraction of productivity gains has been going to
capital.
And since
capital tends to be concentrated in the upper ends of the income
distribution,
falling labor income shares are likely to raise income
inequality…
In advanced
economies, labor income shares began trending down in the 1980s.
They reached
their lowest level of the past half century just prior to the
global financial crisis of 2008, and have not recovered
materially since. Labor income shares now are almost 4
percentage points lower than they were in 1970…
Indeed, as
growth remains subpar in many countries, an increasing
recognition that the gains from growth have not been broadly
shared has strengthened a backlash against economic integration
and bolstered support in favor of inward-looking policies.
This is
especially the case in several advanced economies…
In advanced
economies, about half of the decline in labor shares can be
traced to the impact of technology.
The decline was
driven by a combination of rapid progress in information and
telecommunication technology, and a high share of occupations
that could be easily be automated.
Global
'integration' - as captured by trends in final goods trade,
participation in global value chains, and foreign direct
investment - also played a role.
Its
contribution is estimated at about half that of technology.
Because
participation in global value chains typically implies
offshoring of labor-intensive tasks, the effect of integration
is to lower labor shares in tradable sectors…
Taken together,
technology and global integration explain close to 75 percent of
the decline in labor shares in Germany and Italy, and close to
50 percent in the United States…
Another key
finding of our research is that the decline in labor shares in
advanced economies has been particularly sharp for
middle-skilled labor.
Routine-biased
technology has taken over many of the tasks performed by these
workers, contributing to job polarization toward high-skilled
and low-skilled occupations.
This
“hollowing-out” phenomenon has been reinforced by global
integration, as firms in advanced economies increasingly have
access to a global labor supply through cross-border value
chains…
Sadly, Australian
workers has fared badly against their Advanced Nation counterparts.
As shown recently
by Greg Jericho, Australia's decline in wages' share of GDP
has been particularly steep:
In 1975, two thirds
of Australia's GDP was in the form of wages, whereas in 2014 it was
just 53%.
The below charts,
which come from the ABS National Accounts, illustrates the
decline in Australian workers' shares.
First, the growth
in average employee earnings is the lowest on record:
And has failed
dismally to keep pace with growing labour productivity:
Meanwhile, the
share of total factor income going to workers (as opposed to
business owners) has been falling for decades:
While
the elites continue to sell us the
economic virtues of globalization and mass immigration, the gains
are flowing primarily to the wealthy owners of land and capital, who
get to privatization the gains and socialize the losses.
Ordinary workers,
by contrast, have been largely left behind, experiencing weak income
growth, rising debt levels, deteriorating housing affordability,
worsening congestion, and overall declining livability.
These factors,
above all others, help to explain the rise of fringe political
movements like,
It's a class war...
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