One useful way to gain understanding with this issue is to breakdown the different the different parts of labor and capital income and see what’s generating the change. The Congressional Budget Office provides a useful summary of this process with U.S. Here’s a figure showing the labor talk about of income for the U.S. As I’ve mentioned before, back around 1980 when I was first getting my feet wet in financial data, the standard collection perception was that the labor talk about of income was approximately constant.
Even in to the 1980s and 1990s, you can argue that the labor share of income was hovering in more-or-less the same pretty narrow range. But the fairly drop in labor talk about of income since about 2000, down to 59.3% of total income in 2011, is below any post-1950 value. The shape also demonstrates the best drop in labor’s talk about of income has happened in the corporate sector.
Why gets the fall been so large in recent years? Clearly, the depth of the Great Recession and the sluggishness of the economy since the end of the recession in ’09 2009 change lives from what labor is receiving. The typical pattern is is that labor income tends to rebound as an overall economy recovers, but the recovery has been so listless that labor’s share has stayed low.
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But there’s also concerns that the decline in labor’s share of income may be a more long-term phenomenon, linked with globalization and technology. Rental and Royalty Income of Persons since 1950. Clearly, the majority of fluctuation in the last 40 years relates to this imputed “household rental income” from those living in homes that they own.
Compared to the period from the mid-1970s to the early 1990s, this factor can help clarify why capital income is about 1% of GDP higher, and therefore why the labor share of income is leaner. From the federal government statistician perspective, the worthiness from burning up or wearing down fixed physical capital is a form of capital income. Again, this factor can help to explain why the capital talk about of total income is bigger and the labor share of income is correspondingly smaller. Finally, a big share of capital income is revenue to firms.
From all this, here are a few take-away thoughts: The labor share of income in the U.S. Some of this will self-correct as employment rises again gradually. Some of it is due to change in technology and globalization which have raised the go back to capital and put downward strain on the pay of substantial groups of workers.