The share of national income received by workers has fallen steadily in advanced economies to under 40 per cent in 2014 from around 55 per cent in 1975, a new report by the IMF says.
Labour’s share of national income has also fallen in more than half of emerging economies since figures have been compiled in the early 1990s, the IMF says.
The figures are contained in Why Is Labor Receiving a Smaller Share of Global Income? Theory and Empirical Evidence by Mai Chi Dao, Mitali Das, Zsoka Koczan and Weicheng Lian.
“A falling labour share implies that product wages grow more slowly than average labour productivity,” the report says.
In advanced economies, there are two explanations for the fall in labour’s share of national income that have found favour with analysts:
- the rapid advance of technology which has reduced the cost of capital and led to a relative decline in the employment of labour
- globalisation of trade and capital.
“Technological progress, reflected in the steep decline in the relative price of investment goods, has been the key driver in advanced economies, along with high exposure to routine occupations that could be automated, with global integration also playing a role, albeit a smaller one,” the report says. “The evidence also suggests that the impact of technological advancement and participation in global value chains on the aggregate labor share in advanced economies comes through a reduced share for middle-skilled labor. This finding corroborates existing evidence for advanced economies that automation and import competition and offshoring have led to long-term losses in middle-skill occupations and displacement of middle-skilled workers to lower-wage occupations.”