Thursday, July 16, 2015

Income Gap Grows As Labor Requirement Declines: Technology Replacing Labor

I think we have seen this coming for years, as labor demands more money for less work, employers began looking for ways to eliminate the need for individual labors. Ever wonder why the U6 unemployment rate is more the 10% now and growing and more then 93 million workers are underemployed and unemployed?

This makes sense as to why there is growing income gap, the very reasons to hire or increase wages is diminishing as more and better technology comes on line. Just think about of all the financial headaches that are avoided with fewer individuals?

And what roll does our current federal government play in the game of total control of outcomes and politics?

Recent Declines in Labor's Share of Income
Source: Robert Lawrence, "Recent Declines in Labor's Share of Income: A Preliminary Neoclassical Account," National Bureau of Economic Research, June 2015.

July 14, 2015

 Over the past decade, in addition to its poor employment performance, the U.S. economy has been plagued by sluggish wage growth and rising income inequality. The growth in real GDP per worker over the decade of the 2000s that averaged 1.7 percent annually was more rapid than in the 1970s, 1980s or 1990s, yet in the 2000s workers saw almost no increase in their take home pay or share of national income.

Since the 1960s labor's share of national income has oscillated between 64 percent and 67 percent. However, since the onset of the financial crisis that share of income has fallen below historical levels. The counterpart to the declining labor share has been a rise in the share of capital that has been especially concentrated in corporate profits, and since claims on profits are far less equally distributed than wages, this has contributed to increased income inequality.

The natural starting point for explaining factor income shares is the neoclassical theory of the functional distribution of income. If capital and labor are substitutes, as Thomas Piketty has suggested, then a decline in labor's share of income is explained by increased use of capital. However, as Robert Lawrence empirically shows in his study of industry and aggregate data, if they are compliments an explanation of the decrease in labor's share of income is that there is not enough capital.

Lawrence's empirical evidence corroborates many others in concluding that in the United States capital and labor are compliments. He also found that the cause of labor's falling share recently is the weakness of investment in the face of faster labor-augmenting technical change. This suggests that measures that boost investment and capital formation would lead to higher wages, raise labor's share in income, and reduce income inequality.

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