Labor Share Declines While Total Compensation Rises, Analysis Shows
5 reported
An analysis of labor compensation data reports that the share of Gross Domestic Income accruing to labor has declined in recent decades while the share going to capital has risen. The analysis accepts the decline as real, though it notes some of the trend could be due to data artifacts such as proprietor’s income mislabeled as capital income. Despite the falling share, total real compensation to labor is higher than ever and growing, with a steady growth rate outside of recessions. The analysis points out that during the 2008 and 2020 recessions, the labor share was locally at a maximum because GDI shrank more than labor compensation, meaning capital took a bigger hit. The data are consistent with a story in which more productive capital raises output and demand for labor, increasing labor’s absolute compensation even as the share declines. The analysis notes that if shares had stayed constant with the same output growth, labor compensation would have been higher, but calls this a hypothetical.
What’s reported
The share of Gross Domestic Income accruing to labor has been declining in recent decades while the share to capital has risen.
Some of the decline could be an artifact of data, such as proprietor’s income mislabeled as capital income.
Total real compensation to labor is higher than ever and growing, with a steady growth rate outside of recessions.
During the 2008 and 2020 recessions, the labor share was locally at a maximum because GDI shrank more than labor compensation.
The data are consistent with a story where more productive capital raises output and demand for labor, increasing labor’s absolute compensation.
Sources: marginalrevolution.com
