Tag Archives: wage share

Soup kitchen

Source: Wikimedia Commons

by Jonathan Nitzan and Shimshon Bichler

Can it be true that capitalists prefer crisis over growth? On the face of it, the idea sounds silly. According to Economics 101, everyone loves growth, especially capitalists. Profit and growth go hand in hand. When capitalists profit, real investment rises and the economy thrives, and when the economy booms the profits of capitalists soar. Growth is the very lifeline of capitalists.

Or is it?

Read More

Total national income can be divided into two halves: the wage share and the profit share. As sociologist Tali Kristal showed in a 2010 article in American Sociological Review, the wage share of national income has declined since the 1980s in the Anglo-Saxon countries, Continental Europe, and even Scandinavia. On average across 16 OECD countries, “labor’s share declined by almost 9 percentage points since the early 1980s, from 73 percent in 1980 to 64 percent in 2005.”

Sophisticated statistical research by heterodox macroeconomists – those who work outside of the mainstream based on theories developed by Marx, Keynes and Polish macroeconomist Michael Kalecki – has found that declining wage shares lead to lower GDP growth. In other words, if more national income was shifted from profits to wages, GDP growth would improve.

Where such a relationship holds true, growth is said to be “wage-led” – reducing the wage share generates slower growth; increasing the wage share would improve growth. If a reduction in the wage share did not result in reduced growth, then growth is “profit led,” meaning that investment demand offsets any decline associated with the reduced wage share.

A new report for the International Labor Organization has now shown that the G20 countries – which account for 80% of Gross World Product – as a whole are wage-led. In short, planet earth is wage-led.

In this post I briefly elaborate how these findings relate to the sociology of work before turning to explain the Kaleckian macro models in a bit more detail.

Read More