Revisiting the Global Decline of the (Non-Housing) Labor Share

That is a new paper by Germán Gutiérrez and Sophie Pitony.  I am on the road and have not had a chance to go through this, but the abstract is of interest:

We identify two undocumented measurement challenges affecting corporate sector labor shares outside the United States: the inclusion of dwellings and the inclusion of self-employed workers in the corresponding sectoral accounts. Both issues have become more important over time, biasing corporate labor shares downward. We propose two methods to correct for these challenges and obtain `true’ non-housing labor share series. Contrary to common wisdom, the corrected series exhibit stable labor shares across all major economies, except the US, where the corrected labor share declines by 6 percentage points since 1980.

For the pointer I thank Ilya Novak.


I think this makes the picture for workers look worse, not better. If housing prices are increasing faster than wages, then property (i.e. housing) owners are becoming better off than workers, and one’s economic outcomes increasingly depend on what housing your parents can pass down rather than how much you earn. This is no better from corporate profits increasing at the expense of wages. In fact, I’d argue that disproportionate capital gains in housing are worse for workers than disproportionate corporate profit increases because corporate profits are more likely to reflect real innovation rather than simply natural and man-made land restrictions.

I don't agree with your reasoning. The value of a house is determined by the market not by the labor going into it. The worker gets a salary that they agreed to based on hours worked not the value of the home. The home does not belong to the worker and they should not expect to get a salary or "gain" based on the sale price of the house. To think that they should be payed in some way that is commensurate with the home value is bizarre and reeks of a failed socialist mindset.

I’m not saying what workers should be paid—I agree that should be determined by the free market (although I would note that there are many policies that prop up house prices from zoning to better tax treatment beyond what you’d find in a free market). I’m just questioning the implied premise of the article, which seems to be that increases in housing value should be excluded when calculating the relative share of economic growth going to owners of capital versus workers. I think there is no reason to distinguish between capital gains from housing versus capital gains from stocks or corporate profits or any other type of return to capital.

" then property (i.e. housing) owners are becoming better off than workers" Who do you think owns most housing? The workers are the main beneficiaries of growth.

Landlords. You don't live in the city do you?

The bottom 70% of US workers haven't seen a real pay raise in 50 years. How many houses do you think they are buying?

Anyone else noticing the recent uptick of UFO/extraterrestrial related incidents being reported? Do you think maybe we are focusing on the wrong topics here?

There is a higher intelligence behind nature's nudges, exposed in the unobservable part of the quantum field.

I'm still struck that the bloke who claims to be me is entirely incapable of writing even one sentence in a passable imitation of British English. Probably he only does it to tease.

"Contrary to common wisdom, the corrected series exhibit stable labor shares across all major economies, except the US, where the corrected labor share declines by 6 percentage points since 1980."

Of course. What has happened since 1980?

1. Imports of manufactured goods. The classic example being autos, which started in the 70s.

2. Immigration of low-skilled workers from Mexico, which pushed wages of low skilled and blue collar workers down. Remember Simpson-Mazzoli in 1986? It's been all downhill since.

3. Increase in energy prices across the board - which really began after the Arab oil embargo in 1973 - which takes a disproportionate share of low wage earner's income. This should have lessened now that we are a fossil fuel superpower but "climate change" ...

4. Outsourcing
5. Automation
6. Globalization
7. Competition for a vital scarce resource - land. The US has added approximately 100,000,000 people since 1980, mostly in or near cities where the jobs are. Buying a home is out of reach for many, while the wealthy are taking in the rents. In addition, many, even educated white collar professionals with both partners working, have a lower quality of life - except for the effectiveness of medical care - that their parents. Nice, blue collar, middle class suburbs with affordable housing, good schools, low crime, and low traffic are a thing of the past, or, more correctly, are only enjoyed by the top 20% by income and wealth.
8. Politics dominated by elites who not only don't give a rat f*ck about the common worker but actually despise them. Oh sure, they'll let one or two in the house to fix broken plumbing, but in general treat them as untouchables.

It's gonna get ugly.

I realize my comment is USA centric.

Actually not so USA centric if you think about China and what's happening there as a couple of hundred million people have moved to the cities in just 30 years.

1. The classic case of American automakers producing crappy products and having their shirts handed to them thanks to some competition. Low and middle income workers needing reliable, affordable vehicles rejoiced. (Insourcing by foreign automakers then followed.)

Yes, you are correct. It did have a devastating effect on blue collar workers, so it is worth mentioning. There was a corresponding decline in other areas of manufacturing. A combination of environmental regulations, which I think are good, low wages outside of the USA, low shipping costs, high energy costs, tax policy, and higher wages drove manufacturing overseas, especially to Asia. Those blue collar workers, in the main, never found equivalent employment. There was also a decline in private-sector unions. Throw in NAFTA, and you have a perfect storm. The discontent brewed for decades, leading up to Trump, and perhaps Brexit, yellow vests, et al.

The good news is millions, maybe hundreds of millions, were lifted out of poverty globally. The bad news is all politics is local.

" Do you love it
Do you hate it
There it is
The way you made it ..." - Frank Zappa

Ed, the problem is, nothing of what you said is the problem, lets examine:
1. Cheap Imports: Nope, nope and more nope, especially on Auto. You mean more imported "brands" manufactured by the Americans. Nothing new here. That has been going on since 1750 in many respects. The post-war era was not going to last forever in terms of "American" patronage once the recovery ended. Debt expansion then came in as a side effect of the reserve currency status and imports became necessary for the financial powered economy to keep growing. I am amazed you don't get that. Everything since 1923, when the industrial growth began to plunge into the stagnation of the post-war era, shows this. Imports are nothing more than financial power, or Pax Americana, nationalistic empire.
2.Oil prices: Not buying it Ed. Labor Share didn't rise at all in the 88-2003 period during low oil prices as adjusted for inflation, they were. Climate Change? bahhahahahhaha. Typical semite.
3.Immigration. I can buy this one, though its impact is more limited since Republicans love their off book illegals. US immigration today is not any different than the pre-GD immigration up to 1930. The collapse reduced bodies counts until around 1970 when body counts began to recover, yet there was still immigration in the 50's and 60's from non-European sources. Not enough Ed on labor share.

Ed, lets be honest, the Labor Share boom of the post-war era was a massive economic growth generated boom. Period. US population growth averaged between 1946-1973 2% and rGDP grew 4%. Nuff said. That kind of growth to population is going to boom labor share. Once it ended and Boomer driven population growth blew up to 2.7% in the 70's and 2.4% in the 80's, GDP only grew 3.2%. Labor share is going to correct downwards. Nothing lasts forever and the explosion of the US consumer market was the last great innovation wave outside the computer burst that crested in the late 90's. So with a financial nationalism, financial dictatorship via the dollar and economic power, US growth has been driven by asset growth, new economy engine and supply chains feeding US consumers into the US, who go into debt made whole by foreign exporters. This sounds like a reserve currency in action. No surprise the late 90's was the biggest wave of labor share increase when the last innovation wave blew off. There is no answer for the labor share decline Ed except that growth has slowed. Period. Once you deal with that, you will understand capitalism's state of mind and how the different arms and legs operate the wheels. Dumping the reserve currency status maybe should be done(which is what de Rothschild and their boy Trump want) but Americans would have to work again and boy, that detox can get ugly.

Interesting response - I'll have to read a few times and think about it.

One challenge is that more than one thing changes simultaneously. For example, consider pre-1930 immigration into the US. The country was much less densely populated, non-competitive farmland near cities was being converted into housing and towns, and there were abundant factory jobs. There was demand for unskilled labor and the country could absorb the immigrants, which included most of my ancestors in btw. Immigration was subsequently restricted. Then there was a decade long depression followed by a five year long global war, which the US survived in a position superior to Europe and Asia. The 1950s and 1960s were decades of economic growth and opportunity and cheap housing expanding into former agricultural areas.

It seems to me very difficult to compare the 1930s to the 1940s and 1950s as each decade was profoundly different from the others.

"Debt expansion then came in as a side effect of the reserve currency status and imports became necessary for the financial powered economy to keep growing. I am amazed you don't get that. "

Ha ha! There is a lot I don't get!

I am not an economist, nor do I understand monetary policy. Please explain your statement regarding debt, imports, and the reserve currency.

Like every topic in economics, there are studies and then there are counter studies. Place the studies that confirm your biases upon your escutcheons.

In terms of policy-making, I advise all developed nations to work assiduously to raise incomes of middle class workers, especially the US.

Keep labor markets tight. Cut taxes on labor income. Unzone property. And decriminalize pushcart and truck vending.

Instruct the Federal Reserve to no longer target a 5% unemployment rate on the u3. Consider unemployment a much worse scourge than a mild increase in inflation.

Otherwise my friends, you will see AOC in the White House and you will deserve it.

+1. I would go further than just unzoning property. Producing affordable housing where the jobs actually are will go a long way. If markets fail there, then governments have to step in. Also, healthcare is a disaster that the current administration has no solution for. It continues to eat a large portion of everybody's paycheck with no end in sight.

It's nincompoopery to admit that the very government responsible for restrictive zoning rules will turn around and efficiently produce affordable housing.

"If markets fail there, then governments have to step in."

Do you believe that if governments fail markets have to step in? Because if so there wouldn't be much room for governments, would there?

Lol! Thread winner!

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