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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.
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
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.
Wages and Salaries
The figure provides a perspective on this issue. The dashed line
shows wage and salary income as a
fraction of national income. This
measure clearly shows a declining
1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
trend in recent decades. Having


Views expressed do not necessarily reflect official positions of the Federal Reserve System.