Economics in crisis (2 graphs)

from David Ruccio

Cornelia Strawser, in response to Brad DeLong, notes the importance of the declining labor share in U.S. national income.* She then poses a series of questions that, in her view, should be “raised in the academy and in public discourse”:

– Does the falling labor share arise from rapid technological change?

– Or does it reflect changing power relationships?

– Is it a result of globalization, hence inevitable and irreversible?

– Or is it an anomalous business cycle development that we can expect to fade away?

– What does increasing financialization contribute to the falling labor share?

– Is the labor share made worse by our reliance on monetary stimulus – which encourages more financialization – having failed to deploy a more stimulative fiscal policy?

– If private-sector productivity growth is not raising worker wages, why should workers support it, and should it be a national priority?

– Does the rising capital income share contribute as much to investment demand as the falling labor share subtracts from consumption? Or, since investment demand depends on final consumption demand, does the falling labor share instead cause a vicious downward spiral of self-reinforcing underconsumption and stagnation?

– Is there a case for a compensating structural tax reform that would place a relatively greater burden on capital incomes, and less on labor?

To which one might add an additional question: isn’t it time to reconsider the structure of corporate governance and give employees a role in running the enterprises in which they work?

*There are many different ways of measuring the labor share. In the chart above, I have calculated it in terms of total wage and salary accruals paid to individuals minus employer-paid supplements to wages and salaries, which are best interpreted as deductions from profits that do not go to employees but to others (such as health-insurance companies, retirement accounts, and so forth). Here’s a chart showing total wage and salary accruals with and without the supplements:

Here’s a link to the U.S. Bureau of Economic Analysis’s explanation of how they calculate compensation [pdf].