Labour’s falling share of income

Posted by in Development, Economics, Politics

“Labour’s share of income – the proportion of the total income of a country that goes to working people as distinct from the owners of capital – has been dropping for decades as a direct result of government decisions,” CTU Economist Bill Rosenberg says.

“The facts are clear. If wage and salary earners received the same share of the income generated in 2017 as they did in 1981 they would on average have been $11,500 better off. Their share of the total income generated dropped over that period from 58.7 percent to 48.7 percent.”

“The falling labour income share shows that real wages have not been keeping up with income growth. The Productivity Commission’s report has failed to acknowledge the significant part played in this fall in workers’ share of the nation’s income by poor employment law and working people’s loss of bargaining power.”

“The largest falls can be identified with wage freezes in the early 1980s, commercialisation and privatisation which boosted profits while cutting wages in the late 1980s, and the Employment Contracts Act (ECA) in the 1990s. The effect of the ECA on labour share of income lasted until employment law changes in 2004 allowed a little of the share to be regained. The positive changes were put into reverse by the 2008-2017 National Government, which led to another steep fall starting in 2009.”

“Technology may have played some role, along with companies making excess profits due to lack of competition, as some research suggests overseas. But we need to look at the evidence in New Zealand and it is hard to dismiss the impact of government policies over a long period since the early 1980s.”

“New Zealand still has one of the lowest wage and salary shares of the country’s income in the OECD,” Bill Rosenberg says.