A famously depressing chart is the “Labour’s Share” of GDP, which shows how much of our total income is going to laborers instead of capital-holders.
It’s been on a pretty steady downtrend over the last several decades.
There are all kinds of theories to explain what’s going on, including the decline of unionization and changing technologies, which give more power to owners of capital, and less to people who do actual work.
But a new paper unveiled at the Brookings Papers on Economic Activity conference (via Matt Yglesias) says it all basically boils down to one thing: increased overseas competition for manufacturers. So in other words, the explosion of Chinese labour is what’s driving down the wages, employment, and bargaining power of their U.S. counterparts.
Delving into the data, the authors explore four additional explanations for the decline:
- The headline measure overstates the decline of the labour share by one-third because of the way self-employment income is estimated.
- The declining labour share is not merely a recent phenomenon — although the most recent decline has been dominated by changes in the trade and manufacturing sectors — even prior to 1980, there have been substantial, though offsetting, movements in labour shares within industries.
- There is limited evidence that the share is dropping due to the substitution of capital for (unskilled) labour to exploit technical change embodied in new capital goods.
- The decline in the per cent of unionized workers in the workplace is not, in fact, a major cause of the decline of the labour share.
From the paper itself, this chart tells the story. The more an industry faces competition from imports, the greater the decline in payrolls.
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