Labor Economics Essay Sample: Decline of Labor Share

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How Has The Labor Share of Output Declined Over Time?

Labor share which is commonly known as wage share stands for the compensation which is offered to someone after providing his/her labor to an organization and it is one of national income component (Karabarbounis, Loukas, and Brent 61). Labor share also indicates the distribution of earned income. It increases when the earned income goes down and decreases when the output goes up.

Over the past period, since 1980’s, countries have witnessed a decline in labor/wage share as a national income component. In 2008, these countries reached the most known lowest level, and they have not recovered since then. For example, in China, labor share has fallen by 3% despite being considered as one of country recording gains which are impressive concerning poverty reduction. Currently, labor share stands 4% lower as compared to what it was in 1970 (Chi Dao et al.). Labor share has also declined in developing countries since 1990. Despite many countries being considered as developed, their labor share keeps dropping.

Many authors have indicated that the above situation is attributed to changes in technologies, capital accumulation, mechanizations and capital price change (Chi Dao et al.). Labor share in developed countries with advanced economies has reduced much due to technology. This is because technology has resulted in the progress of information, and also telecommunication resulting to automation of most functions hence occupants losing their jobs. Global integration with technology has led to about 75% decrease in labor share in many countries like Germany and 50% in USA. The figure below shows how the trend of labor share has gone down from 1950 to 2016 in the United States. *All data is retrieved from: https://fred.stlouisfed.org/series/W270RE1A156NBEA

In conclusion, the labor share will continue to decrease since many countries’ economies have been affected by technology and they will no longer separate this from them since they need to record high income. I would recommend nations to look for opportunities which are emerging from the advancement of technology and encourage their citizens to take up those chances. Income should also be distributed to all factors of production.

Works Cited

Chi Dao et. al. “Drivers of Declining Labor Share of Income.” IMF Blog. N. p., 2017. Web. 25 Nov. 2017.
Karabarbounis, Loukas, and Brent Neiman. “The global decline of the labor share.” The Quarterly Journal of Economics. 129.1 (2013): p 61. Web. 25 Nov. 2017.
“Shares of Gross Domestic Income: Compensation of Employees, Paid: Wage and Salary Accruals: Disbursements: To Persons.” Fred.stlouisfed.org. N. p., 2017. Web. 25 Nov. 2017.