Category Archives: labor share

1/8/19: Wages vs GDP growth: when economic growth stops benefiting workers

I have posted earlier some data on the gap between real GDP and real disposable income per capita in the U.S. (see here: that evidences the longer-term nature of the ongoing debasement of real incomes in the repeated cycles of financialisation of the U.S. economy. Here is another view of the same subject matter:

Per chart above, consistent with my arguments in the case of disposable income, U.S. labor incomes have been sustaining ongoing deterioration relative to overall economic growth since at least the 1970s. In fact, the current expansionary cycle (yellow line) shows relatively benign speed of deterioration in real wages or labor income share of total real GDP, although the length of the cycle means that the total end-of-recession-to-present decline of ca 54 percent is deeper than that in the expansion of the 2000s (decline of 50 percent).

A different view of the same data is presented below, plotting historical gap between wages and GDP over longer horizon and showing expansion-periods' averages, contrasted against Trump Administration tenure average:

Once again, all evidence points to the decreasing, not increasing rate of wages fall relative to GDP over the years.

Of course, the effects are cumulative, which means that our perceptions of labor share collapse and the amplifying pressure on labor income earners in the economy is warranted.

1/8/19: Debasement of Real Disposable Income share of GDP: Historical Trends

I have been crunching some data recently on the historical gap between real GDP growth and wages/income of households. Some of this work will be forthcoming in an article due later this month, so keep an eye out for it. Some of it is post-dating the article submission. Here is an example of the latter. The following chart plots index of real GDP from 1Q 1959 through 1Q 2019 against the index of real disposable income per capita. Both indices are set at 100 at 1959 average.

There are 5 distinct periods over which growth in real GDP moved further and further away from growth in real disposable income. All are associated with monetary accommodation periods post-recessions, and all are associated with increasing post-recession financialization of the U.S. economy and financial or real estate asset booms.

Interestingly, the current rate of acceleration in the gap between economic growth and disposable income growth is... underwhelming. It pales in comparison to what was witnessed in the 1980s, 1990s and 2000s. To see this, consider the chart showing this gap by itself:

Despite our commonly-expressed public, media and analysts' perceptions of the declining share of economic growth going to disposable personal incomes being a new (current) phenomena, the reality of historical data paints a different picture. Most of declines in the share of economic activity accruing to wages, bonuses and investment and retirement incomes have taken place in previous decades, with the ratio of real GDP to real disposable income being relatively stable from the start of 2013 on. Prior to that rate of the decline in the relative share of disposable income has been less sharp from 1999 through 2012, when compared against all other decades.

The debasement of real incomes has been a steady and historical continuous process over the last 60 years.

4/8/18: Collapsed Labor Share of Economy 1947-2016

The frightening fate of the U.S. labor is best highlighted by the share of labor in economic output. Fred database only provides the data through 2014, and then stops. BLS provides data through 3Q 2016, and then stops. No one bothers to measure the contribution of the largest factor of production to the economy any more. Here is the BLS data:

The share of labor contribution in total economic output has, basically, collapsed. The slide started with the technological revolutions of the 1960s and 1970s, followed by computerization and supply chain management revolutions of the 1980s and 1990s. But the real collapse took place starting with 2002 post-dot.Com bust. Despite the tight labor markets and very low unemployment, labor share never really recovered from this decimation.

If this chart offers a stark cross-reference to socio-political environment we are living in today, such cross-referencing is not ad hoc. Labor is what we, people, have to supply in return for the life's necessities and luxuries. For the majority of us, it is ALL that we can supply.  Even our assets, such as homes and pensions savings are, ultimately, tied to labor, not to capital, because their performance is linked to our peers' labor-paid demand. A middle class house is an asset to other middle class households. It is not an asset to the jet-set shopping for homes in the Hamptons. When that demand collapses, as is currently happening in a number of rapidly ageing economies, real assets we hold turn out to be if not completely worthless (, at least severely depressed in value (

So a decline in economic value added share accruing to labor is a transfer of income (and therefore wealth) from those who work for living to those who invest for living (invest in technology and/or financial assets). This game is a zero sum game even after we account for pensions funds and household investments: someone loses (labor), someone gains (investors). It is made even worse by higher taxes on labor and by transfers via monetary policy (Quantitative Easing).

The only way to offset such transfers is to vest labor with claims to financial returns. In other words, by providing workers with shares in the financial markets. Simply taxing and shifting income from higher earners to lower earners won't do the trick, because some higher earners are generating their income through labor (and human capital), while others are doing so through inherited and acquired financial assets. Taxing income of the latter implies taxing incomes of the former, which, in turn, depresses returns to investment in human capital (or, ultimately, returns to investment in labor).

Basic income structure of the future will have to achieve exactly that: create broad share ownership of financial instruments linked to financial and technological capital amongst those supplying labor.