Workers’ Shrinking Share of the Pie
The current issue of the Federal Reserve Bank of Richmond periodical, Econ Focus (second/third quarter 2019) has a good article, “Workers’ Shrinking Share of the Pie” [Archived PDF] which has the following “conclusion:”
So what explains the recent decline in labor’s share? Unfortunately, it is difficult to untangle the separate roles of automation, globalization, and changes in market power. Automation has likely played a role, but its independent impact is hard to gauge, due to the difficulty in differentiating the recent wave of automation from previous episodes in which labor’s share of national income held steady. Globalization appears to have been a strong contributor—a claim that is buttressed by the near simultaneity of the rise in U.S. trade with China and the decline of labor’s share. A variety of evidence also points to firms’ increased pricing power in product markets and workers’ weakened bargaining power in labor markets. In product markets, information technology and globalization appear to have increased the pricing power and profitability of certain dominant firms. And in labor markets, the insecurity engendered by automation and globalization may have helped to weaken workers’ bargaining power. In short, from the perspective of workers, multiple forces have come together to narrow their slice of an expanding economy.
(second/third quarter 2019 Econ Focus, Richmond Fed, page 17)
It so happens that Professor Robert Lawrence of Harvard (Kennedy School) in his very careful analyses, shows how American economic “numbers” in recent years are consistent with internal American numbers from decades ago and this implies the overall transformation of the American economy was primarily from within (“endogenous”) and not till very recently, from without (“exogenous”). Pre-exisiting internal American trends might be the dominant cause for many decades.
The variable or axis “endogenous versus exogenous” (internal pushes or external pulls?) adds a whole dimension to the discussion and we have to therefore avoid mono-causal explanations.
We live not only in a multifactorial world but in one where “inside pushes” can be confused with “external pulls.”