Labor's Share Has Declined Across Europe

Harold Meyerson has a good column on the impact of the decline in unionization on the middle class. However he makes a mistake in saying the the labor share of income has only declined in the United States and crisis countries in the euro zone. Actually, if we go back to 1980, the labor share of income has declined pretty much everywhere in Europe, although there are differences across countries. In many countries the decline in labor shares has been larger than in the United States. (Meyerson's comparison of 2001 and 2011 is misleading because 2001 was a cyclical peak for labor share in the U.S.)

Meyerson also blames the reduction in wages for ordinary workers on globalization. This is somewhat misleading. We could have designed trade policies that focused on opening up the most highly paid professions (e.g. doctors, lawyers, economists) to more international competition. This would have driven down wages in these professions and led to higher living standards for ordinary workers since the services they provide would cost less.

Instead policymakers have adopted policies that were designed to put manufacturing workers in direct competition with low-paid workers in the developing world. These policies would lower their wages, making doctors, lawyers, and economists richer in addition to owners of capital.

Fed and Congress favor Capital over Labor
written by Robert Salzberg, June 13, 2012 6:20

The federal minimum wage was $1.60 in 1968 which is worth $10.58 in today's dollars which means the current $7.25 federal minimum wage today is $3.33 behind 1968 and would need a 46% raise to catch up.

The Fed has consistently put inflation ahead of employment and has serially created recessions that have suppressed employment and therefore wages.

Then there's always the lack of universal healthcare which isn't wages but would count as compensation/benefits.

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written by ellis, June 13, 2012 9:58

To believe that economic policies are decided on by the government is putting the cart before the horse. Companies decide on what's most profitable and governments then help them achieve that. It's absurd to believe that government officials have the kind of power that Dean Baker attributes to them. They're errand boys, nothing more.

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written by John, June 13, 2012 10:06

Why exactly would lower wages for professionals mean higher living standards for ordinary workers? It's at least as likely that the owners of capital would capture these savings, just as they capture the savings from lower wages for ordinary workers.
Let's have higher wages for ordinary workers, not lower wages for professionals. It's owners of capital that have captured all the productivity gains, and owners of capital that should give some of that up.

Globalization
written by Bart, June 13, 2012 11:20

Along the lines of what John writes, you say that blaming globalization is "somewhat misleading" because of how we protect the incomes of professionals.

Doesn't this topic need expansion? What about all the industries that have moved off-shore, such as steel, textiles, etc.? Their lose has affected the wages of non-professional workers and left us with little of those industries.

Lower wages do lead to lower prices
written by Dean, June 13, 2012 12:04

The vast majority of the drop in the wages of manufacturing workers has been passed on in lower prices. Higher profits are a small part of the story. The profit share of GDP has risen, but we're talking 2-3 percentage points, not 15-20.

We should assume that the same would happen if our doctors and lawyers were subject to international competition. Perhaps some folks here want to be taxed so that doctors can take home $250k a year, but my guess is that most of the public would rather keep their money in their own pocket.

Financial deregulation since the 80's
written by garth sevdalis, June 13, 2012 1:14

Has our deregulation of financial Insts. been negative for GDP and has it hurt the demand-side of the picture more than supply-side where the benefits were (are) more enjoyed?

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written by Jay, June 13, 2012 4:23

I don't think opening professionals to competition will necessarily make their services more affordable. Opening doctors up to competition is not going to lower the costs of tests, medicines, insurance, electronic record keeping, and other administrative costs. Opening lawyers up to competition is not going to lower court cost fees, discovery fees, or investigative costs. There are plenty of unemployed lawyers and struggling doctors that cannot afford to serve low income people. I guess you could argue if we opened them up to competition instead of everyone else then everyone else would have more money to pay for those expenses. Although, I think more vigorous antitrust regulation, universal healthcare, and education reform is more necessary than forcing highly indebted professionals to work for minimum wage.

Doctors get $250 billion a year out of our pockets
written by Dean, June 13, 2012 9:32

Jay,

If doctors got the same pay as doctors in West Europe, that would save us more than $100 billion a year. That is twice the size of the Bush tax cuts to the rich. This is real money. If you want to give doctors more money so that they can be rich, give them a tip. Don't tax the rest of us.

Doctors in Western Europe
written by John, June 13, 2012 11:02

Doctors in Western Europe also have a much more relaxed lifestyle as public servants rather than as greedy income-maximizers. I'd like to save us $100B/yr, but part of the bargain is that the doctors would not be incentivized to work 100+ hrs/wk. Doctors work their asses off in the U.S.

Asses off
written by paul, June 13, 2012 11:51

Jay, though I may be agreeing, the "hard-working" doctor ethic imposes costs of its own. Fee for service incentivizes unnecessary medical treatments and also has a negative impact on the quality of treatment by reducing time given to doctor patient interaction.

another point
written by paul, June 14, 2012 12:17

Dean, As a "layperson" who has been following the debates about globalization since the 80's, I have to ask, apart from the inequality effects (which for the sake of argument let's say are largely a result of the political construction of "free trade"), do we have any good picture of the trade off between gains from trade and the cost of the employment/cyclical effects? Are these bad effects only caused by increasing inequality (and obviously there are transitional costs in the short term)? Also a small point, while medical, accounting, engineering services should get cheaper, I doubt labor mobility will affect legal fees so much (though I wish it would).

Labor's Share Has Declined Across Europe

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