Cooking the Books: Labour’s Share Goes Down
In July, the OECD, an organisation grouping the developed capitalist countries of Europe, North America, Japan and Australasia, published its Employment Outlook 2012. Chapter 3 noted that ‘during the past three decades, the share of national income represented by wages, salaries and benefits – the labour share – has declined in nearly all OECD countries’. The Times (11 July) summarised the report:
‘Automation and computerisation are responsible for as much as 80 per cent of the decline in so-called “labour share”, which measures wages as a proportion of total income generated by the economy … The research … shows that the average labour share dropped from 66.1 per cent in the early 1990s to less than 62 per cent in the late 2000s. In all but four of the 26 OECD nations analysed, workers’ slice of their country’s income declined between 1990 and 2009.”
What the OECD was trying to measure, at national level, is what Marx would have called ‘relative wages’, i.e., the workers’ share in what they produce. This does not necessarily mean a decline too in ‘real wages’ (what wages can buy). In fact, according to the OECD, ‘in essentially all OECD countries, while the fraction of national income accruing to labour decreased, economic growth was still sufficiently rapid so that real labour compensation increased and workers were on average better off.
Since the income of the self-employed was divided between labour and capital, a decline in labour’s share meant a rise in capital’s, with the result, as the Times pointed out, that:
‘Corporate investors have been the big winners, as businesses save on salaries and their profits increase.’
Further, as workers became on average better off, the shift meant that ‘corporate investors’ had to have become even more better off.
The OECD’s figures have some bearing on the arguments amongst students of Marxian economics about what has caused the present economic downturn. Some say that is due to a fall in the average rate of profit; others, that it is due to the decline in labour’s share of national income. One passage in the OECD report seems to give some credence to the latter view:
‘… the shift of income away from labour (and, in particular, from low-wage workers) towards capital (and top earners) may have a negative impact on aggregate demand to the extent that workers with below average pay tend to have a higher consumption propensity than do top earners and capitalists.’
On the other hand, it may not, as long as the capitalists use their increased profits to increase their luxury spending and, more importantly, to re-invest in production; which in fact they did until 2008.
The OECD figures say nothing about the rate of profit since they concerned only the division of new income corresponding to new wealth and value produced in a year. The rate of profit measures total profits in relation to the total amount of capital invested. No doubt, due to ‘automation and computerisation’ that went on during the period in question, the stock of capital would also have increased. Whether it would have increased more than the increase in the amount of profits – which it would have to have done for the rate of profit to fall – is not something the OECD went into.
While capitalist firms do calculate an expected rate of return to decide when, where and whether to invest, and check whether or not this is being achieved, they will not take into account the rate of profit of the whole economy, if only because this is something they have no means of knowing.