1 Labour share in numbers
In the UK, the fault line between the capitalist class and the working class became particularly evident throughout 2022 and 2023. After the COVID-19 pandemic, the general price level across the economy started to rise, mainly driven by an increase in energy and food prices (Weber and Wasner, 2023). Many workers, including post office staff, nurses, traffic wardens and teachers, went on strike to demand an increase in their salaries that reflected high inflation rates. On the other side of the negotiating table, however, employers argued that they could not afford to increase workers’ wages, as they would be enduring considerable losses in their profits otherwise.
This conflict between employers and employees alludes to the reality that the national income generated within an economy can either go towards the workers, in the form of wages, or towards the capitalists, the owners of the means of production (the machines, buildings etc.), in the form of profits.
Figure 2 below shows how national income has been distributed over the past few decades by focussing on the change of the labour share over time.
Activity 2: The distribution of income between workers and firms
- What does the figure tell you about the proportion of national income held by workers?
- What can we extrapolate about the share held by entrepreneurs and shareholders?
Discussion
Between 1980 and 2017, the labour share of national income across selected economies in the Global North has declined (between −2.0 percentage points in the UK, and −10.4 percentage points in Spain). The other side of the coin therefore is that the capital share in national income must have increased over the same period. Thus, we have seen an increase in economic inequality – the unequal distribution of wealth and income – as a result of the re-distribution of national income from the vast masses, the working class, to the capitalist class.
However, the distinction between workers earning ‘only’ wages, and capitalists being the only ones earning capital income is not always watertight in the real world. Thus, you may question whether a decline in the wage share is bad if workers’ incomes are growing as they are getting a rising share of profits, e.g., via their pension funds or rents because of home ownership. While it is true that workers living within countries with a functional pension system receive a monthly transfer in the form of a pension in old-age, in the UK, for instance, about one in five pensioners is living in relative poverty (Centre for Ageing Better, 2024). Similarly, also in other countries of the Global North (such as Korea, the US or Switzerland), old-age poverty is significantly higher than the average poverty rate across all age groups (OECD, 2023). What is more, old-age inequality is considerable: on average, across countries of the Organisation for Economic Co-operation and Development (OECD) – commonly considered to group together the most advanced capitalist economies in the world – the 10 percent richest pensioners have an income 4 times higher than the 10 percent poorest pensioners (OECD, 2023).