Reports from the Economic Front

a blog by Marty Hart-Landsberg

Capitalist Dynamics And Labor

The recent International Labor Organization (ILO) Global Wage Report examines trends in the distribution of income between labor and capital.  It finds that:

An outpouring of literature has provided consistent new empirical evidence indicating that recent decades have seen a downward trend for the labor share in a majority of countries for which data are available.

The OECD has observed, for example, that over the period from 1990 to 2009 the share of labor compensation in national income declined in 26 out of 30 developed economies for which data were available, and calculated that the median labor share of national income across these countries fell considerably from 66.1 percent to 61.7 percent.

This trend comes at real cost to working people. Tali Kristal, in an article published in the June issue of the American Sociological Review, provides an estimate of the cost to U.S. workers.   Over the years 1979 to 2007, labor’s share of national income in the U.S. private sector fell by six percentage points.  If labor’s share had stayed at its 1979 level (about 64 percent of national income), the 120 million American workers employed in the private sector in 2007 would have earned an additional $600 billion, or an average of more than $5,000 per worker.   However, as Kristal noted: “this huge amount of money did not go to the workers. Instead, it went to corporate profits, mostly benefiting very wealthy individuals.”

The following three figures, taken from the ILO report, highlight the global nature of this trend.  Figure 31 shows the decline in labor’s share of income for 16 advanced capitalist countries taken as a group and then separately for the U.S., Germany, and Japan.

As the ILO explains:

(W)e observe that the simple average of labor shares in 16 developed countries for which data are available for this long period declined from about 75 percent of national income in the mid-1970s to about 65 percent in the years just before the global economic and financial crisis. . . . The global economic crisis seems to have reversed the decreasing trend only briefly. . . . The OECD, for example, observed: “In times of economic recession, this decline [in the wage share] has typically paused, but then subsequently resumed with a recovery.  The recent economic and financial crisis and subsequent sluggish recovery have not deviated from this general pattern.”

core countries

Figure 32 examines developing and emerging economies and reveals similar labor income trends for different groups of countries.  For example, DVP3, the diamond symbol, represents the unweighted average of Mexico, Korea, and Turkey. DVP5, the square symbol, adds China and Kenya.

Third world

Figure 33 highlights labor’s declining share of national income in China.

China

The downward pressure on living conditions for workers is far worse than the above trends would suggest. These trends just capture the division of income between workers and owners of capital.  Wage inequality has also grown substantially.  As the ILO explains, “If the labor compensation of the top 1 percent of income earners was excluded from the computation, the drop of the labor share would appear even greater.”

One important take away from the above is that capital’s growing profitability is increasingly based on its ability to depress worker earnings.  Figure 36 shows the growing gap between the growth in labor productivity and average wages in 36 developed capitalist countries.  Since the data is based on a weighted average, the trends are largely dominated by developments in the United States, Germany, and Japan.

Productivity

Another take away is that we cannot understand the weakening of labor’s power simply in national terms.  In other words, it appears that every nation is being restructured by a global accumulation process that has enabled transnational capital to use its mobility to undermine the social institutions and solidarity that previously supported labor’s bargaining strength.  And, national states have greatly contributed to this outcome by aggressively promoting free trade agreements.

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