Cracking the Mystery of Labor’s Falling Share of GDP

There are, by my count, now four main potential explanations for the mysterious slide in labor’s share. These are:

  1. China,
  2. robots,
  3. monopolies and
  4. landlords.

1) The China hypothesis basically says that the opening of the Chinese and Indian economies, combined with the invention of globalizing technologies like the internet and containerized shipping, dumped a flood of low-cost labor onto the world market, allowing multinationals to shop around for cheap workers while raising their profits.

.. One problem with this theory is that, according to Chinese statistics, labor’s share has been falling there, too.

 

2) ..The robots hypothesis says that as technology gets cheaper, employers are substituting machines for workers.

.. labor share is falling across the whole economy, but not within companies.

 

3)  .. the economy is simply shifting resources toward a few large companies that are very capital-intensive, and away from the more numerous, smaller companies that use more human labor. Autor et al. blame increasing monopoly power for labor’s decline.

 

4) .. While analyzing the work of French economist Thomas Piketty, Matt Rognlie found that national income accounts showed an increasing amount flowing to owners of land.

 

.. A recent blog post by Paul Krugman

.. When the productivity of the capital-intensive companies improves — due to mechanization, or the internet, or globalization — it shifts production toward those companies, and lowers wages in the process.

.. Now suppose that those capital-intensive companies are a small handful of superstar multinationals, while the labor-intensive companies are a bunch of small, local competitors. Improvement in robots, information technology and globalization would therefore be shifting resources away from the many and toward the few

.. new technologies that disproportionately help big, capital-intensive multinational companies.