
Decline in the labor share of income in the U.S. - whocansay
http://www.vox.com/2015/1/8/7511281/labor-share-income
======
netcan
One of the key concepts for thinking like an economist is noticing where and
how things are economically equivalent, or literally fungible.

Trade (like outsourcing) and technology is economically indistinguishable from
technology from the perspective of a single country. The classic example is
that if you export potatoes and import cars, this is economically equivalent
to finding a way to grow cars in a field.

In practice trade and technology have always been closely related. When China
could make silk and Italy could make glass, trade was very obviously a
substitute for the technology.

So basically, it makes a lot of sense to treat advancements in trade and
technologies similarly in our thinking. Luddite ideas and economic
isolationist ideas are in this sense different flavors of the same reaction by
those made redundant.

Personally, I don't buy "robots wil take all jobs" wholesale. There's a lot of
guesses in there we don't have a rational way of making. We need to remember
the many incarnations of Ned Ludd though time, including eminent figures like
Ghandi. I think they've all been wrong regarding the big picture. While this
time might indeed be different, we need to give some respect to the fact that
this is an idea we have a long history with, and we've been wrong about it in
most cases.

That said, I think the pace of change is a new part of the mix. The work in a
1850 factory and an 1875 factory was not different to the same extent as
1990-2015. People with 1990 skills now are not employable today in many/most
fields. If that condenses further as I think it will, many people will fail to
stay employable from 18-65, which means more unemployment.

I think we also need to consider some points Marx was fairly right about, the
inevitability of political instability as a result of certain economic
realities. Too much inequality can lead to revolution.

~~~
Paul_S
Can you really imagine a 18th century France style revolution in the west
today? Try! I can't. Why is that? People haven't changed in 200 years yet it's
completely unimaginable.

~~~
jerf
I'd say it's a combination of A: a long period of relative stability and B: in
the west, _everyone_ is freakishly wealthy by historical standards and has a
lot to lose, thus, you lack a base of desperate people with nothing to lose.
(Chatter about "wealth inequality" in the West can sometimes cover over the
fact that by historical standards, we have basically cured poverty as much as
we can, modulo some fiddling around the edges of incarceration vs.
institutionalization vs. homelessness at the fringes. Doesn't mean it's not
bad or not a problem, but it does pay to contextualize it historically every
so often, to stay grounded.)

On the other hand, it does mean that if there any sort of instability, people
will have to rediscover from scratch how to deal with it, a process that
sounds relatively painful to me. Here's hoping we never really have to find
out.

~~~
mfoy_
>everyone is freakishly wealthy by historical standards and has a lot to lose

You raise a really good point here, and I think this is one of the most
important stabilizing factors in today's society.

------
ptaipale
There are more issues here that could be discussed - particularly what is
pointed out already in point 5, statistical quirks - but I'll stick to this
one in point 6 for now:

"Another possibility is that the decline is more recent than we assume, and
the result of slack in the labor market is due in large part to the
recession."

I haven't studied US data, but in my country (Finland), which is a small
country dependent on trade, the impact of recession is exactly the opposite.
Recession means that the labor share of income goes _up_ , not down. Labor
share of income has been in historically local highs at a time when life was
very very bad (1992-1993): high unemployment, falling income, foreclosures.

The labor share of income has gone down here, as well. But it's not because of
more money going to capitalists. Their share has been essentially the same
since 1970's (23-25%). In my country, the falling share of labor is almost
entirely explained by the rising share of state: the proportion of taxes on
production and imports has gone up by about 5 percentage points, from 10 % to
15% of national income. So the share of labor has gone down from ~67 % to ~60
%.

I wrote this blog post three years ago but it's still quite valid:
[http://ptaipale.blogspot.fi/2012_08_01_archive.html](http://ptaipale.blogspot.fi/2012_08_01_archive.html)

~~~
collyw
" Recession means that the labor share of income goes up, not down."

I think that is the way a capitalist system is supposed to work. Unfortunately
in the UK and the US at least, they have been throwing money at the problem in
the form of quantative easing. This has almost certainly kept asset prices
high (the UK is well overdue for a hous price crash), and I assume that it has
the effects of keeping labor prices lower.

~~~
tormeh
Nobody has ever explained to me, in a satisfying way, what's wrong with a
helicopter drop.

Edit: I mean helicopter drops in the original sense. That is, printing money
and the giving it away unconditionally and equally to all flesh-and-blood
citizens.

~~~
crdoconnor
>Nobody has ever explained to me, in a satisfying way, what's wrong with a
helicopter drop.

The main effect would be a a transfer of wealth from debtors to the indebted,
a hit of inflation and an economic stimulus effect.

The economic multiplier would not be as high as something like SNAP (which is
about 2.5-3.5x I think), since the middle classes and rich recipients would
just squirrel away what they got. Or use it to pay down debts. It would have a
higher economic multiplier than pretty much any money that's been funneled
into bailouts though.

Whether all this is "good" depends on your perspective.

Practically speaking, though, any potential helicopter drop is going to be so
small it will have virtually no effect. At the same time, it'll be demonized
every step of the way by the people who would hate the precedent it would set
(i.e. anybody who is owed money).

I think whatever your desired effect is there's probably a better tool to
achieve it than a helicopter drop. It's a fairly blunt tool.

~~~
aljones
Why is a helicopter drop more prone to inflation than QE? Presume we're in a
liquidity trap as the proponents of helicopter drops and QE do.

Edit: I have misinterpreted what you said. I read your first sentence as
explaining what was wrong with a helicopter drop of money, because that is
what was asked. However you probably didn't mean that to be a list of bad
effects, just effects, to set the stage for your real answer which is the
multiplier. Which is indeed the most important thing to consider.

~~~
yummyfajitas
A helicopter drop will put money into the hands of poor people, causing them
to consume. Concretely, a poor person might eat more. This makes food prices
(included in CPI) go up, hence inflation.

In contrast, QE might also stimulate investment. Concretely, we might build a
factory or a road. This makes industrial machinery prices (not included in
CPI) go up, hence no inflation.

Since the goal of stimulus is to reduce real wages and induce workers to stop
turning down productive labor, the former is more useful than the latter. Of
course, there are countervailing effects - giving workers money directly can
substitute for them getting a job. (See my other post:
[https://news.ycombinator.com/item?id=10438248](https://news.ycombinator.com/item?id=10438248)
)

~~~
asgard1024
What you're saying doesn't make sense. Why would anyone invest without
expecting more consumption?

The economy cycle doesn't start with investing, it starts at consumers having
money and giving them to someone in exchange for a service or product. How
could you know what to invest in before there is even demand?

~~~
yummyfajitas
There is clearly demand present, given that we have not (as an economy)
reverted to 100% subsistence farming. In any case, you don't need to expect an
increase in consumption to invest - one can simply expect to steal customers
from the other guy. Uber's investors didn't expect Uber to create new rides,
merely to steal riders from the cartels.

Of course, if you are correct that no one will invest, then all the money from
QE will be funneled into consumption. This will have the same effect as the
helicopter drop, modulo distribution.

~~~
asgard1024
What I mean is that there can't be _more_ investment without more demand. In
the Uber example, there won't be more investment either - if you expect Uber
to grow on behalf of other companies, these will be divested. In fact, you
could expect decrease of investment with Uber, like with any other new
technology (disputable in Uber's case, but for the sake of argument), because
the whole point of moving to new technology is to decrease investment needed
to maintain the same level of consumption (that is, increase productivity).

> all the money from QE will be funneled into consumption

They are, after sitting there idly for a while. The bank CEOs have to pay
their mistresses and so on.

And distribution is important too. The whole problem of debt deflation is that
you have money sitting idly (or better say idly circulating in an endless
vortex of financial machinations), not being spent on goods and services.

~~~
yummyfajitas
I think you are confusing investment and cost of operation. Investment is
building the new technology, cost of operation is the cost of providing
consumption. Increasing investment today will indeed increase production in
the future - that's the whole point.

*They are, after sitting there idly for a while. The bank CEOs have to pay their mistresses and so on...money sitting idly..."

The production is either consumed, invested, spent on government or exported.
P=C+I+G+NX. You seem to believe it can be neither C nor I (well sometimes), so
are the wealthy spending all their unconsumed income on government or exports?

~~~
asgard1024
> Increasing investment today will indeed increase production in the future -
> that's the whole point.

So you agree that for the investment to be worth it (and thus made),
consumption in the future must increase (or at least appear that it will
increase to the investor)? That was my point.

> The production is either consumed, invested, spent on government or
> exported.

I talked about money, not production. Money can be saved, or in today's world
more likely, ran around in circles through the financial system, without ever
causing more consumption to happen.

~~~
yummyfajitas
No, for the investment to be worth it the return needs to exceed the risk free
rate.

If your sole claim about money is that there needs to be a functioning
monetary system so that the consumer can easily transfer value to the
producer, I agree.

------
EGreg
Love it! This article is the best I've seen so far on a topic I've been
writing about for years, ever since Obama said this:

[http://m.youtube.com/watch?v=yIBhg1v4bMo](http://m.youtube.com/watch?v=yIBhg1v4bMo)

All those politicians promising the middle class jobs to come back ... they
are selling you a bill of goods. Automation and outsourcing has caused wages
to fall. David Harvey argues this started in the 70s but was masked by the
consumer credit boom and the internet boom:

[http://m.youtube.com/watch?v=qOP2V_np2c0](http://m.youtube.com/watch?v=qOP2V_np2c0)

WE WILL NEED expanded safety nets, preferably in the form of a universal basic
income, so laid off people can re educate themselves. This money can come from
taxing the gains that corporations make from automation, not enougu to
disincentivize R&D but enough to redistribute some of that value to offset the
DEMAND SHOCKS to local human labor. Without this we are heading for trouble.
We do not have an elastic system right now that responds to increasing
automation!

"He who does not work does not eat" \- we need to decouple these in our
economic system.

And contrary to what anarcho capitalists believe, it will enable more
efficient allocation of resources:
[http://magarshak.com/blog/?p=185=1](http://magarshak.com/blog/?p=185=1)

~~~
crdoconnor
>Automation and outsourcing has caused wages to fall

Outsourcing, austerity and union busting have caused _vastly_ more damage to
wages than automation ever has or ever will.

Automation is simply given most of the credit for it because it's a
_fantastic_ scapegoat. That's the real reason it appears at the the top of
lists like these.

It lets American oligarchs and the politicians and elite economists who follow
in their wake redirect blame for outsourcing, austerity and union busting and
cast their opponents as luddites who are "against progress".

I think basic income is performing a similar, although slightly different
function. Almost every person who advocates for it realizes that it's a
political non-starter. This is, of course, glossed over every time that it is
brought up.

The great thing about it being a political non-starter is that, as an oligarch
you can advocate for it maintaining your progressive and 'forward thinking'
credentials and your notional _opposition_ to income/wealth inequality while
safe in the knowledge that you will never have to actually suffer its effects
(higher inflation & a less pliant workforce).

You can continue to enjoy the great benefits income an wealth inequality has
to offer you and still remain "one of the good guys" in the public eye.

~~~
ageek123
What austerity are you talking about? There was no austerity in the US. The US
government has spent more money every year throughout the financial crisis.

Also I assume by "outsourcing" you actually meant "offshoring." But this was
covered in the article -- it's part of globalization.

~~~
crdoconnor
>What austerity are you talking about?

SNAP cuts were one example of a deliberately inflicted austerian reform. The
overall cost was actually pretty low, but the ripple effect is magnified.

With less SNAP, low income families are far more reliant on their jobs for
sustenance, which turns them into more pliant workers and who accept lower
wages/worse hours.

>The US government has spent more money every year throughout the financial
crisis.

Yes, well, funneling ever more money into too big to fail banks and bloated
military contractors while cutting food stamps is still austerity as far as
99% of the nation is concerned.

~~~
adventured
The SNAP budget has doubled during Obama's presidency. It hasn't been cut.

Here's a chart showing its extreme increase:

[http://i.imgur.com/tGgtpmL.jpg](http://i.imgur.com/tGgtpmL.jpg)

And as a share of GDP:

[http://i.imgur.com/4JbxWiT.png](http://i.imgur.com/4JbxWiT.png)

The primary problem in the SNAP program, was the flood of people
participating. The per capita sum didn't quite keep up with the large influx
of people wanting to be on the program. However, that has been partially
offset by increases at the State level as well.

The US has never spent more per capita on food programs overall, between the
local + state + national level, than it does today.

There has hardly been a drop of austerity in anything in the US.

~~~
crdoconnor
"The per capita sum didn't quite keep up with the large influx of people
wanting to be on the program."

Which is just a euphemistic way of saying that SNAP benefits have been cut.

It may not look like austerity from your oblique perspective, but then again,
you're _definitely_ not claiming food stamps.

------
PythonicAlpha
The trend is going on for decades now. The rise of the finance sector is IMHO
the main reason.

In the finance sector, multitudes more money is flowing today, than in the
real economy with products and services. Big money is going, where the most
interest is been made ... but the interest must come from somewhere. To think,
that it just appears somehow and everybody is getting richer, is just wishful
thinking. Finally, some day, somebody will have to work for it or somebody
will loose something (e.g. land that is sold to investors, that use it to
generate even more money).

So, more and more interest is made by investments, money lending or even
speculations. Who are the losers? The working people, that just have not
enough money to invest and use their working power or their brains to get the
money for living.

Globalization is helping this trend. Money can just go where it is cheapest,
instead fighting fights with worker organizations. In many countries, people
are so desperate, that they sell their work for a prize, they merely can
survive on.

Trend is going on. Money seeks better places to invest, more land to grab,
more patents, more, more, more -- and for those that have not got money
already, the possibilities to earn money or to get better of are vanishing,
since more and more land is owned, more "intellectual property", more
lobbyist, which say, how the laws shall be that shape our future. Also more
trade treaties, like TPP, TTIP and the others, which create better conditions
to invest and to make profits for corporations ... which are owned by big
money.

~~~
ThomPete
But you have to ask yourself why the finance sector have been on the rise and
the answer to that inevitably become technology which powers 4 things.

Automation Digitalization Globalization Capital intensive companies instead of
labour intensive ones.

All these things allow for scalability and therefore support a "highlander
principle" where very few players can control most of the wealth.

~~~
crdoconnor
>But you have to ask yourself why the finance sector have been on the rise and
the answer to that inevitably become technology

It's not technology at all. Technology doesn't confer the monopoly powers
which have led financial giants to be so dominant. Technology can be copied,
reproduced and replicated.

The reason is much more mundane. The financial sector has been given
dumptrucks full of cash and special privileges in the form of valuable
guarantees. They're an adjunct of the government in all but name.

~~~
ThomPete
This trend happens everywhere around the world. Even in social democratic
countries like the Scandinavian countries this is happening and is only slowed
down by the strong redistribution of wealth.

So yes regardless of how tight or lax the regulation is same trend is seen
everywhere and the only thing they have in common is the use of technology.

Ignoring that is simply lying to ourselves.

------
biehl
Vox (Matt Yglesias) has another take on the subject here

[http://www.vox.com/2015/10/20/9570175/labor-share-
housing](http://www.vox.com/2015/10/20/9570175/labor-share-housing)

However, the focus on zoning laws is a bit weird - taxing "location value"
properly seems more obvious.

~~~
crdoconnor
Sounds like scapegoating again. Don't look at the magician behind the
financial magic curtain wielding QE and deregulating lending. Look at the
busybodies in your neighborhood. It was all them.

~~~
stvswn
Yeah, because Matt Yglesias is leading the conspiracy on behalf of the big
banks.

I guess you're not familiar with his work.

~~~
selimthegrim
Yglesias is someone I'm pretty comfortable putting in the "neoliberal shill at
first blush" category though, even if he's trolling

------
ThomPete
Outsourcing really just is the last step before automation. The major trend to
look for is always cost of production where labour being the number one cost.

In order for products to keep getting cheaper the cost has to come down. This
trend doesn't stop just because we outsource it to China or Brazil or India
and so even they become too expensive.

Unless economist start factoring in technology as one of the key economic
factors rather than treating it as they do now – an externality – we will
still argue about whether too much government or too little government is
going to save us all.

And the politicians wont do anything because they don't see it projected in
the forecasts the economist give them.

In the meantime robots are going to slowly but surely put most of us out of a
job in almost all the industries we know of right now.

Or put another way – it's the technology stupid.

These three graphs paint a picture that says a lot.

[http://www.technologyreview.com/sites/default/files/images/d...](http://www.technologyreview.com/sites/default/files/images/destroying.jobs_.chart1x910_0.jpg)

[https://plot.ly/~BethS/8/job-growth-by-decade-in-the-
united-...](https://plot.ly/~BethS/8/job-growth-by-decade-in-the-united-
states/)

[https://hateandanger.files.wordpress.com/2013/10/trends-
in-u...](https://hateandanger.files.wordpress.com/2013/10/trends-in-us-gdp-
profits-investment-and-employment-1995-2011.jpg)

------
tim333
I mildly object to the title which would be better saying US in it. For the
other 95.6% of us non US persons things have often been different. Here's a
graph showing US wages largely static from 2000 to 2011 while China's have
gone up something like 5 fold.

[http://www.marquetteassociates.com/Research/Chart-of-the-
Wee...](http://www.marquetteassociates.com/Research/Chart-of-the-Week-
Posts/Chart-of-the-Week/ArticleID/378/The-Wage-Gap-Between-the-U-S-and-China-
Continues-to-Narrow)

~~~
ThomPete
Yeah but please keep in mind where they came from income wise.

Don't think for a second that the chinese will be spared when also they are
too expensive.

Between 98-04 the US lost 4 million jobs t the chinese in that same period the
chinese lost 18 million to the robots.

Outsourcing is just one step before automation.

------
gasull
What about quantitative easing? QE is like making the financial part of the
economy grow on steroids.

------
digi_owl
[http://www.amazon.com/Debunking-Economics-Revised-
Expanded-D...](http://www.amazon.com/Debunking-Economics-Revised-Expanded-
Dethroned/dp/1848139926)

Just going to leave this here. Its a real helpful read for any kind of
economics debate.

------
mattmanser
I appreciate the sentiment, but that graph is awful. On a scale of 0-115 they
are showing just 20 of it, wildly exaggerating the scale of the drop.

~~~
learnstats2
You _never_ see financial/commercial graphs with a zeroed y-axis; why should
graphs criticising finance/commerce be subject to this condition?

The graph correctly illustrates what they are trying to show, with the correct
numbers that you have correctly identified.

