Attention Marxists: Labor's Share Of National Income Drops To Lowest In History

Tyler Durden's picture

Probably the most imprtant secular trend in recent employment data, one that has a far greater impact on the macroeconomic themes than Birth/Death and seasonal adjustment manipulated month to month shifts in the employment pool per either the household or establishment surveys, is the labor share of national income. In a 2004 paper from the St. Louis Fed, the authors make the following statement: "The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable relationships in the  U.S. economy. As a general rule of thumb, economists often cite labor’s share of income to be about two-thirds of national income—although the exact figure is sensitive to the specific data used to calculate the ratio. Over time, this ratio has shown no clear tendency to rise or fall." It would be wonderful if this was true, and thus if the US population really had a stable distribution of income between laborers and capital owners. Alas it is dead wrong. In fact, as the latest note from David Rosenberg points out, the "labor share of national income has fallen to its lower level in modern history - down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began." And here is where the Marxist-Leninist party of the US should pay particular attention: "some recovery it has been - a recovery in which labor's share of the spoils has declined to unprecedented levels."

Like Rosie, Zero Hedge is not a marxist blog: quite the opposite, but like him we come to the same troubling conclusion: "extremes like this, unfortunately, never seem to lead us to a very stable place." We would go further: not only does the US already have the core elements, should one be so inclined, to provoke a (rather active) anti-fascist movement based on some interpretations of pro-corporatists policies adopted by the administration, but should another be so inclined, the country also has the groundwork in place for another neo-Marxist revolution: just take this chart, add some slogans, mix, and simmer. And who will be the natural enemy? Why only look at the great October revolution in Russia for ideas. History always rhymes.

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blunderdog's picture

the whole purpose of automation is to streamline and allow producers to 'get closer' to the consumers and eliminate the middle man

Not sure I'd go this far, but I appreciate the point you're raising.  I'm thinking, more generally, the purpose of automation is to replace labor (acts which require people) with capital (machines/processes/etc).

Getting closer to consumers is one of those platitudes that's spouted a lot, but most profit-enterprises are really more interested in controlling the basis of exchange.  At the moment, for example, I'm working for a service provider.  Most of management's focus is on designing our "relationships" with the people/organizations who pay us so that we control exactly what we deliver and (basically) eliminate feedback and time spent on conflict resolution.

I read someone (years ago, don't recall who) who was big on distinguishing between the "customer" and the "consumer."  The customer is someone you want to develop a relation with.  The consumer is someone who you just want to extract money from.

Businesses focused on *customers* will do well, provided they can maintain a profitable margin.  They actually benefit from employing human beings who can improvise and make decisions and improve the contentment any given customer has with each transaction.

Businesses focused on consumers will do well only until they have alienated their consumer market, and then they're done.  Their elimination of human interaction (thus labor cost) can produce very high margins, but only for relatively brief periods, before the profit model is refined by another organization and gains increased share of the market.

Think about any of the unsatisfactory business dealings you've had in the past year, and ask yourself: would "automation" have helped reduce your dissatisfaction?  Or would you have preferred a personal interaction with someone who might make a change you requested?

I think a big part of our problem with "how society works" today is that the social and human costs aren't assessed properly.

fatalerr5's picture

I'm sorrry, but who wrote this trash?

The information is sound but the injection of political terms to distort why this might happen is dangerous and dishonest.


You should know better, your BS will not prevent it from happening if it does.


What might happen has NOTHING to do with Marxism or Secularism.

swissbene's picture

i do not understand labor share metric so tried to recreate on recommendation in nov 2004 cleveland fed paper.  i was unable to do this. note the same paper points to several problems with the metric and suggests alternative methodologies that yield different results.

next simply look at BEA US income stats 2000-2010 [ table 2.1].  summary:

[category, cagr, 2000 share of income, 2010 share of income]

total income, 3.9%, 100->100

wages/salary, 2.9%, 56->51

.. public sector, 4.3%, 9->9

.. private sector, 2.6%, 47->42

supplemental comp [eg employer pension, insurance contributions], 5.1%, 11->13

dividends/interest, 3.4%, 16->15

sole proprietors, 2.6%, 10->8

govt transfers, 7.8%, 13->18

consumption, 4.2%, 83->85

personal taxes, -0.6%, 14->9

ignoring the complexity of the miracle ratio methodology for a moment:

- wages down, but not in govt

- plenty of consumption and lower taxes

- dividends/interest decline as share of national income

- transfer payments!  18% of income!

- sole proprietor income down

this does not say too much to me that i did not know already.  us government and transfer programs are running the show.  of course this is widely reported and discussed on the site and should come as no surprise.  i am a bit surprised by the dividend income - no fuel for the fire here.

you may argue the bea stats are weak/incomplete - i agree.  the so called labor share of income is a fucking joke however, and has been torn to shreds by economists repeatedly since the 1950s.  

perhaps the reason people are not in the streets to fix a real problem eg trade policy, monetary policy, etc is that 18% of their income comes via govt and the ability to identify/think/discuss/resolve real problems has been subsumed by absurd public media & discourse.

in particular the extrapolation from a small set of criminal bankers that clearly need to be reformed by society to broad attacks on capitalism are misguided at best.  similarly the need for a strong social contract is reasonable/desirable not radical.  my guess is reasonable compromises may be found on hard issues but we are instead using hyperbole and talking about absurd metrics that most [self included] do not understand/find useful.

prior to the revolution, suggest reading the 04 cleveland fed linked before:

alan kreuger wrote a good paper on methodology and alternatives:

also IMF paper on trade policy relationship to labor share of income [useful concepts but some questionable methodologies in my view]:

among other things, these point to weaknesses in assuming local equilibrium will be sustained over longer periods that is at core of current methodology, philosophical questions around what is capital and what is labor, the inability of current method to accommodate individual proprietors, government transfers, and government -- these categories should be familiar from the 10 year summary above.

jabhagsb's picture

This drop in share of labor is driven mostly by the phenomenon of "technological unemployment."  Computers and robotics are eliminating the need for a good portion of manual labor and this trend will only accelerate as technology advances.  Not a good sign for the jobs picture and all the more reason we need a new economic and political model.