Full text of Economic Synopses : Labor's Share, No. 20
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Economic SYNOPSES short essays and reports on the economic issues of the day 2004 ■ Number 20 Labor’s Share Michael R. Pakko he relatively slow growth of employment has been a reached a peak of 58 percent in 1970, wages and salaries prominent feature of the current economic expanhave declined to only 52 percent of national income in 2003. sion. Now that employment is showing signs of pickHowever, if we consider total compensation—including ing up, however, attention has shifted to the growth of wages. employer social insurance contributions and benefits— Recent data from the Bureau of Labor Statistics show that labor’s share has shown very little variation.1 By this measure, labor’s share of national income has averaged 70.5 percent real (inflation adjusted) hourly earnings have been declining over the past 50 years and has remained within a narrow for the past several months: From June 2003 through June range of that average. of this year, earnings of production or nonsupervisory Only time will tell if a significant shift in income alloworkers on private nonfarm payrolls have risen 1.7 percent cations is underway. However, a long-run perspective sugin nominal terms; but, after adjusting for inflation, earnings gests that it would indeed be unusual for labor’s share to have declined 1.5 percent. And yet, the economy has been deviate far from its historic value. ■ exhibiting rapid growth, with real gross domestic product expanding at a rate of more than 4 percent in the past year. 1 One complicating factor is the allocation of proprietors’ income, which includes Do these recent observations portend a change in the both labor and capital components. In the data for the figure, proprietors’ income allocation of income in the U.S. economy? Some might is assumed to be allocated in the same proportions as in the rest of the economy. speculate that this is so, but it is difficult to evaluate such a proposition based on only a few months of data. Considering the issue from a broader and longer-run perspective provides a more informative view of this economic landscape. The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable Shares of National Income relationships in the U.S. economy. As a general rule of thumb, econo0.75 mists often cite labor’s share of income to be about two-thirds of 0.70 national income—although the Total Compensation exact figure is sensitive to the spe0.65 cific data used to calculate the ratio. Over time, this ratio has shown no clear tendency to rise or fall. 0.60 Wages and Salaries The figure provides a perspective on this issue. The dashed line 0.55 shows wage and salary income as a fraction of national income. This 0.50 measure clearly shows a declining 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 trend in recent decades. Having T Views expressed do not necessarily reflect official positions of the Federal Reserve System. research.stlouisfed.org