Thursday, July 18, 2013

since crisis labor share redistributed to capital

Before crisis, it was going to high income workers.

Is Productivity Being Translated Into Pay Increases? by Dean Baker
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I had made these points myself a few years back. My conclusion was that we were really looking at a story of upward redistribution from middle and lower income workers to those at the top, doctors, lawyers, and especially Wall Street types and CEOs. Distribution from wages to profits was not a big part of the picture.
 
But that was back in 2007. The picture looks a bit different today. The graph below shows the labor share of net income in the corporate sector. This is a bit simpler than constructing productivity and pay data, but it should get at the same issue. I have pulled out depreciation and also indirect taxes, so the division is simply between labor income and capital income. I also show the share of labor compensation in after-tax income in the corporate sector.
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In the data in the graph it certainly looks like we are seeing a redistribution from labor to capital at least in the years since the crash. For the last three years the labor share of before-tax income was lower that at any point hit in the 1980s and 1990s. The labor share of after-tax income is more than two percentage points lower than at any point in the 1980s and 1990s. That looks like a fairly serious redistribution.

We can throw in the usual qualifications about the data being erratic and cyclical, but it's pretty hard to find a way to make this redistribution disappear. It may prove to be the case that if the unemployment rate falls back to more normal levels then workers will get increased bargaining power and will be able to recapture more of the gains from productivity growth, but that is not happening now.
In the late 90s, Greenspan allowed unemployment to reach 4 percent as he was fighting international financial crises and the stock market bubbled. There is no structural decline because of techology or globalization or oil, etc. It's politics all the way down. The Great Clusterfuck wasn't planned in advance - it dealt the ideology of the system a body blow - but it was a crisis that wasn't wasted.

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