Saturday, January 04, 2014

Labour's falling share of national income

Workers' share of national income has declined across the globe, the Economist reports. It has happened not just  in the US but in more egalitarian economies such as those of Scandinavia  and it in emerging markets as well.

What has caused this and should be something be done about it? The Economist dismisses the familiar theories: exploitation by large firms and weakening unions. Labour's share of income, it notes, has declined in economies with different levels of unionisation. The bigger factors seem to be greater use of IT, which has increased the wages of those with better skills, greater capital-intensity and globalisation, which has led to jobs being exported to cheaper parts of the world.

What should be done? Jobs go to those with better skills, so education and worker retraining are important. More jobs need to be created - and this could mean a cut in corporate tax rates. Thirdly, higher taxes on capital gains, which would harmonise taxes on incomes of labour with those on returns to capital.

A decline in workers' share of income and a rise in incomes at the top are both contributors to growing inequality. Policy makers need to wake up before the social costs become unaffordable.

1 comment:

chandramouli said...

In India, most of the taxes are skewed in favour of giving higher and higher return to Capital rather than bringing about an element of equality in the society by increasing the share of working class. Examples are dividends being exempted from tax, the low capital gains tax, lot of incentives on capital investments in projects irrespective of their employment potential etc. This is consciously done in the absence of any lobbying for the working class. Further with the improvement in science and technology the labour employed in the traditional labour intensive areas have substantially come down being replaced by technology. However, this has created new areas of employment like IT, which do not fall into the category of working class (labour). In the light of this information, it may not be right now to compare the worker’s share of income with that of the top echelons of our society. But the need of the hour is bringing about radical changes in our education system. We have to give to industry the sort of people they need for employment. The education system has to be tuned to meet this requirement. The bad employment situation in the country is a major problem rather than the difference in the share of income of the workers with the income of those at the top, which are strictly speaking not comparable.