Workers used to earn about two-thirds of the income their labor generates. Now, it’s just over half.
Workers used to earn about two-thirds of the income their labor generates. Now, it’s just over half.
Next month, the Bureau of Labor Statistics will tell us how much of the income generated by workers’ toil actually went to them in the first quarter of this year. That stat is called labor share of national income — and it’s shrinking.
In 1947, U.S. workers got about two-thirds of the income from their labors. “Now, they’re getting something that is just a little bit over half. And so they’re getting less of the pie,” said Erica Groshen, who used to head the Bureau of Labor Statistics and is now at Cornell.
You can blame the shrinking slice partly on globalization, with some jobs moving out of the U.S., Groshen said.
“If a company decides they are going to contract out a lot of their services to workers overseas, it won’t be in American workers’ compensation, right?” she said.
Groshen also cited declining union membership. Historically, private-sector employees in unions have made 10% to 15% more than nonunion workers, she said.
There’s also the issue of technology. The costs of automation have fallen, noted Bart Hobijn, a senior economist at the Federal Reserve Bank of Chicago. “And as we can buy equipment cheaper, we might replace people with computers,” he said.
Automation took a bite out of workers’ slice of the pie back in the 1980s, with a big decline from the mid-’80s to around 2010.
But Hobijn added that it’s important to put all of this in perspective. Sure, the size of the slice that ends up on workers’ plates is shrinking, but the overall pie — that is, the U.S. economy — is growing. So, workers are getting a smaller slice of a bigger pie.
“Purely from the pie point of view, there’s birthday parties with big pies, and if you get a smaller piece of the big pie, you’re still getting a bigger piece,” he said.
As long as the economy is growing, that is. But both Hobijn and Groshen think these trends eating away at workers’ share are here to stay. Their pace might even pick up — especially as technology continues transforming the workplace.
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