[Note: This item comes from friend David Rosenthal. DLH]
The Struggle to Explain Things That Didn’t Happen: The Non-Existent Shift Away from Wages
By Dean Baker
Apr 24 2017
I see Noah Smith is struggling to explain “the mystery of labor’s falling share of GDP.” At the risk of jeopardizing good paying jobs for people with PhDs in economics, let me suggest that there is no mystery to explain.
Noah’s piece features a graph showing the labor share of GDP declining from a range of 64 to 65 percent in the 1960s and early 1970s to just over 60 percent in the most recent data. He then gives us several possible explanations for this drop. Let me give an alternative one, there was no drop or at least not much of one.
Suppose we look at the labor share of net domestic product. This is GDP after removing depreciation. This makes sense since deprecation is not something to be divided by labor and capital. It is the amount of output needed to replace worn out plant and equipment. The story since 1960 is below. (For those wanted to check the numbers, labor compensation comes from NIPA Table 1.10, Line 2; NDP from Table 1.7.5, Line 30.)