The decline in labor’s share of national income

That is the topic of my latest Bloomberg column, here is one excerpt:

There is some bad news afoot for workers. Labor’s share of the US gross domestic product has been falling for a long time, by seven percentage points since World War II. The labor share for 2022 — depending on exactly which measure is used, it comes in at slightly more than 60% — is the lowest measured since 1929.

And it’s not just America. Globally, the labor share, which is the fraction of an economy’s output that goes to workers, has declined by six percentage points since 1980. The numbers suggest that the share of labor is declining in 13 of the 16 wealthiest countries in the world.

Note that is a share, and very often real wages still are rising.  Still, why this regularity?

One possible explanation for labor’s declining share is simply that the cost of capital has been falling for decades in most countries. That development benefits capital income very directly: It’s cheaper to raise capital, which benefits workers only indirectly. Of course, with real interest rates higher recently, it will be possible to test whether the labor share of income will make a comeback. In any case, this stands as one of the most plausible hypotheses.

Globalization and automation are two other trends that may have made labor markets more competitive, at least as compared to capital markets. Yet it is not obvious why those forces would lower labor returns more than capital returns. Is labor more mobile internationally than capital? Even if you think US companies have benefited from buying cheap manufactured goods from China and then reselling them at the expense of US workers, that doesn’t explain why labor’s declining share has been so widespread across countries and decades. If globalization were the culprit, labor’s share should be rising in China and other major exporting countries — but the opposite is true.

There is much more at the link.  And I do recommend this Karabarbounis piece from the latest JEP on these topics.