by Tyler Cowen
on June 14, 2011 at 12:47 pm
1. Workers’ share of U.S. national income, over time.
2. Neuroskeptic is now on Twitter.
3. How is Cass Sunstein doing?
4. Indian hangmen: thwarted markets in everything.
What are the other “shares” besides workers that must be increasing? Capital? Anything else?
I was wondering the same thing. And why the upward spike in the mid-2000s?
I want to know the answer, too?
Yes, I don’t understand the graph, but perhaps if “capital” is taking the other part of the percentage, and if the owners of capital are Chinese then it makes sense.
Though why this is a problem I don’t see.
1. To what extent is this a function of rapidly rising foreign corporate income? My guess is that explains most of it.
Cass Susstein. America’s number one expert in making really bad ideas look less bad.
He’s #1? Did Krugman retire?
He said ‘look less bad’ Don’t think Krugman qualifies
It’s funny to read the Cass Sunstein link in sequence with the post about the FDA over-regulating.
Worker’s share of income is inversely correlated with recessions, probably because declines in the stock market erase the financial component of income. These big share rises during recessions are followed by quick drops, likely representing this chain: stock market drops -> layoffs.
Unless it is simply due to increased foreign profits, the recent drop is probably unsustainable. It’s a function of employment rate/stock market returns. If the returns continue the employment rate will shoot back up; if the employment rate doesn’t shoot back up, the stock market will double-dip. I just wish I knew how to go long on this ratio.
Labor share is incomplete. You need to add some or all of proprietors’ income. When you do, the labor share is relatively stable, but cyclical. The share tends to be relatively low in the early stage of recovery and peaks in the late stage of an expansion.
What kind of production function generates such patterns? Can someone create an RBC model which replicates the labor share? Cobb-Douglas won’t do it.
Try search and matching with sticky nominal wages (sorry, plugging my own work–link to pdf if that’s OK with the moderators, otherwise google “Matching labor’s share in a search and matching model”):
Rios Rull has also gotten some traction with CES.
I looked at the nonfinancial corporate sector from the NIPA, which strips out proprietor’s income and hard-to-allocate financial profits. That labor share looks a lot more stable. There’s also a tendency for the last couple of years of the sample to get revised dramatically as tax return data come in.
Excellent! Thanks for sharing.
If you look at labors share of non-farm output you see that from WW 11 to 1980 it had small cyclical bounces around 66%– peaking at the cyclical peak and falling early in the cycle . the long run trend was very steady.
But since 1980 it has been on a secular decline till it is now 57.5%. The cyclical bounce was small going into the 1990s recession, very large before the 2000 recession and almost nonexistent before the last recession. Despite the Republican talking points that firms are not hiring because labor is too expensive, this data shows that labor cost as a share of production cost is at a post-WW II low.
I think the change after 1980 was the success of the libertarian policies that cheap labor is the answer to every problem– you know, their strange belief that you raise peoples standards of living by cutting their wages.
Maybe someone should plot this against immigration?
In regards to the first link, does anyone have data from before 1944? Obviously workers were not invented in the mid-1940s. It seems difficult to determine what is the “natural” or “correct” level of income distribution without considering the earlier parts of the twentieth century. For example, I’ve read that the share of income retained by the top 10% from 1917 until 1942 is similar to the share retained by the top 10% from 1990 until today. Maybe that’s “normal” and the middle of the century was the actual aberration?
1. My first question was – just what is this graph showing? The St. Louis Fed site doesn’t really explain it. It comes from the BLS but I couldn’t find much detail. What is the remainder of National Income consist of? Anybody have some references?
To see how the different shares of production cost for manufacturing has changed go to:
The compensation-productivity gap:
a visual essay
Look at chart II near the end of the article. It shows that the drop in labor share was offset by rising capital share and rising purchased material inputs — including energy.
I scanned that before and it didn’t answer my question. The original chart is nonfarm labor and the breakdown of inputs is for manufacturing only.
Holy crap! Workers get almost nothing now! Wait…
*looks at bottom of y-axis*
*sigh* another moron that can’t produce a meaningful graph…
But it wouldn’t look as scary that way! Another victory of marketing over meaning.
Plus it’s really pretty meaningless anyway. All it says is that costs have shifted from wages to capital. If anything it’s surprising the chart didn’t drop more before, given how much mechanization and automation have happened.
I do wonder how small business income is classified — especially contractors. It might partly just reflect the fact it has gotten costlier to use employees vs. contractors.
Who is “capital”? How has that group changed over time? What do you think the effect of defined contribution plans like 401Ks and IRAs has had on that group? What effect do you think the decline of defined benefit plans has had on that group?
Lovely graph. There isn’t an ideologue in the world who can’t prove his point with it.
Why not just distribute brass knuckles and have done with it? We could resolve our differences honestly, or at least without confronting the vast specter of human ignorance.
That article on Cass Senstein is frightening. We’ve got drug shortages, power plants closing, $4+ gas, electricity prices set to rise 60%… it’s scary to think how much worse things could be if Sunstein wasn’t opposing even more regulation.
Re looking for a hangman… It is hard to emphasisie how important it is to get someone who knows how to do this. There were several official inquiries in Britain in the 19th centurt about this going wrong (decapitation or death by strangling — though in fairness the latter seems to have been the standard approach untill the middle of that century)
Also — recall that the Saddam Hussein execution went pretty badly wrong.
It’s so weird to put the labor share as an index based at 100 rather than 60-67% or whatever it is in absolute terms. This is another way to inflate the change by 25% or whatever. This certainly challenges the empirical justification for Cobb-Douglas production functions, which is a close to constant labor share.
Not sure if anyone else has pointed to this but take a look at the chart for unit cost: Unit Labor Cost (ULCNFB)/ It actually shows a steady increase over the same period — until the most recent quarters where it’s turning down.
Wonder who is collecting on labors’ behalf?
Re: # 3
Cass Sunstein is a law professor. He is now an executive level bureaucrat in one of the federal government’s innumerable “Offices Of…” dealing with highly technical subject matter at the practical not the theoretical level. To his credit, this probably makes him hesitant to enact all those revolutionary ideas that sounded so good in that book he wrote back at the University of Chicago. I wish Samantha Power (Mrs. Cass Sunstein) would exercise similar restraint.
Does anyone like that article on Sunstein? The operating assumption seems to be that most regulations are good, which seems bizarre. Have I become a conservative without realizing it?
B.B. has a key point. Proprietor income is part labor. Just ask any proprietor.
But how that income is reported to the government will change over time, depending on current tax law.
There was once a big incentive for small businesses to declare as much income as possible as salary, since the rest of corporate income was taxed twice. So labor compensation was overreported.
Less so with current law, when it’s generally easier to organize as an LLC.
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