Reasons why your pay isn’t going up

carry signs during a march and rally by labor union supporters in
Los Angeles


  • A decline in union participation helps explain stagnant
    wages for US workers.
  • Research points to automation as another factor in
    labor’s falling share of national income.
  • The same trend is taking place all over the world, not
    just the United States.

Federal Reserve Chair Janet Yellen and other top economists say
productivity is the key to long-run wage growth for American
workers. That would be true — if only the fruits of economic
expansion were actually trickling  to average incomes.

labor share vs corporateInternational Monetary Fund

“If the labor market continues to improve we will see some pickup
in wage growth, but we have at the moment low productivity
growth,” Yellen told Congress in her last official testimony
in her current term as Fed Chair, which ends early next year.

“That wage growth would be greater over time if productivity
growth picks up.”

Two new studies indicate the process might not be so simple.
That’s because for decades now the benefits of a more productive
economy have flowed increasingly
to corporations at the expense of

It’s happening for a bunch of reasons, research shows. The two
main ones: a sharp decline in worker unionization and the
automation of certain types of work that has further eroded the
bargaining power of labor.

Labor share by state
The drop is widespread
both geographically

Monetary Fund

A new report from the International Monetary Fund zeroes in
on one particular trend: “The US labor share of income has
been on a secular downward trajectory since the beginning of the
new millennium.”

“Across both state and industry, we show the decline in the labor
share is broad-based but the extent of the fall varies greatly,”
write IMF economists Yasser Abdih and Stephan Danninger. “In
addition to changes in labor institutions, technological change
and different forms of trade integration lowered the labor

The IMF research finds the share of US national income going to
workers in the form of wages and benefits has declined 3.5
percentage points since 2000.  Before that period “while the
labor share displayed some ups and downs, there was no notably
long-term trend.” 

Labor share by industry
And across

International Monetary

Trade and globalization also played some role in the
process, the paper suggest, because the sectors most deeply
affected were also those most exposed to international trade,
such as 

information technology, manufacturing,
transportation, mining, and agriculture.

The findings come with a rather stern warning about social and
growth effects from the decline in labor’s share of the economic
pie, which has become a major political issue in the United
States and other Western nations.

It also serves another reminder that the IMF has recently begun
delivering advice to rich nations of
the sort it used to reserve for emerging markets.

The result has been rising income inequality, which tends to rise
as the labor share of national income shrinks.

Labor share income inequalityInternational Monetary Fund

“This income inequality, in turn, entails large social costs. It
deprives lower-income households of the ability to stay healthy
and accumulate physical and human capital and has been shown to
negatively affect the pace and sustainability of economic
growth,” the study says.

“The downward trend in the labor share is a widespread and global
phenomenon,” the authors add. 

A second paper by economists from the Organization for
Economic Cooperation and Development (OECD) focuses specifically
on the
global nature of the trend in declining worker
 On average across OECD countries,
just 17% of workers belong to a union, down from 30% as recently
as 1985, the paper finds.

Union trendsOECD

As for solutions, the authors present a few outlines,
but recognize a lack of easy policy options, particularly given
the changing nature of work.

“The picture that emerges from the data discussed above is
complex, but confirms the broad decline in the use of collective
bargaining to set the terms of employment,” write Sandrine Cazes
and co-authors. “Some innovative responses are beginning to
emerge, but we don’t know yet how well they will work.”

Rising part-time work and the advent of contract labor,
often happening outside of an office or factory context,
poses “a major challenge for collective bargaining systems given
that they are still largely based on the concept of a standard
work relationship.”

Unions better get to work. 

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