Economists used to think that labour and capital’s shares of national income would remain relatively stable, but that hasn’t happened. Instead, with relatively stagnant wages, workers are getting a smaller share of the economic pie, as capital owners take an ever-growing portion through corporate profits and income.
Labour’s share of our national income – wages, salaries and other compensation – has been on a generally downward trend in Canada since the early 1990s, declining from about 61 per cent to 56 per cent more recently.
Labour’s declining share is now attracting the attention and concern of international financial institutions like the International Monetary Fund (IMF), because it is related to stagnant incomes, rising inequality and slowing economic growth. These factors are now boiling over into support for more radical or right wing politicians.
What’s behind this downward trend for workers’ share of national income – and what, if anything, can we do to reverse it?
According to the IMF, about half of the overall decline worldwide can be traced to the impact of technology and automation of routine tasks. Offshoring and globalization have also played a significant role, as has integration of global financial markets. Companies can more easily shift production overseas, and use this as a threat to keep wages low. Together, these have increased returns to corporations while squeezing wages – particularly for middle-skilled and middle-income workers, who have been displaced into lower skilled and lower paid occupations.
Political changes that erode workers’ bargaining power have also contributed, including lower rates of unionization, weaker regulations and employment standards, and deregulation. The IMF study doesn’t look at the expansion of corporate control through stronger “investment protection,” property rights and trade deals, but other studies highlight the harmful effects of these policies.
Other economists trace labour’s declining share to growing monopolization of markets by mega-corporations combined with increased exploitation of labour through outsourcing and precarious work.
To reverse this trend we need to do much more than the education, training and minor redistribution measure that the IMF and business-friendly governments propose. Instead, we need to confront the many economic, political and legislative factors that caused this decline in the first place. These root causes include attacks on labour rights, cuts to taxes and public spending, shrinking economic regulations and corporate-friendly trade agreements. Tackling these issues will shift political and economic power back to workers, and away from corporations, capital and the top one per cent.