Reports from the Economic Front

a blog by Marty Hart-Landsberg

Thinking In Class Terms Again

All the talk about the need to restructure our economy and end our dependence on debt financed growth has tended to overlook a critical issue—declining worker earnings.  The downward pressure on wages helped to boost profits but only because worker consumption could be sustained by ever greater debt.  If we are going to change the way our economy functions we need to address the forces that have been driving down wages.

The blog Angry Bear recently had an interesting post dealing with this issue.  Among other things it offered data illustrating the fact that labor’s share of income has been declining for decades.  In other words, we are dealing with a long term structural problem.  And unless you hear policy makers address this reality you can be pretty sure that what they propose to do will not be of much help to the great majority of working people.

Here is the relevant part of the post:

This shift to an environment of stronger productivity and weaker real growth generated an interesting development that has received little attention among economists or in the business press.

This development was a secular decline in labor’s share of the pie. [See chart below.] Prior to the 1982 recession there was a strong cyclical pattern of labor’s but it was around a long term or secular flat trend. But since the early 1980s labor’s share of the pie has fallen sharply by about ten percentage points. Note that the chart is of labor compensation divided by nominal output indexed to 1992 = 100. That is because the data for each series is reported as an index number at 1992=100 rather than in dollar terms. So the scale is set to 1992 =100 rather than in percentage points. But it still shows that labor payments as a share of nonfarm business total ouput has declined sharply over the last 20 years and prior to the latest cycle we did not even see the normal late cycle uptick in labor’s share.

If this chart gets a lot of attention it will be interesting to see how the libertarian and/or conservative analysts who keep coming up with all types of excuses to explain away the weakness in real labor compensation in recent years explain this away. If you really want to raise a stink you could look at this as a great example of the Marxist immiseration of labor that Marx believed was one of the internal contradictions of capitalism that would eventually lead to its self destruction.

[click on chart for easier viewing]

labors-declining-share.jpg

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