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Labour Pains

By November 2, 2013No Comments
The Economist | November 2, 2013

All around the world, labour is losing out to capital

ON AN enormous campus in Shenzhen, in the middle of China’s manufacturing heartland, nearly a quarter of a million workers assemble electronic devices destined for Western markets. The installation is just one of many run by Foxconn, which churns out products for Apple among other brands, and employs almost 1.5m people across China. In America Foxconn has become a symbol of the economic threat posed by cheap foreign labour. Yet workers in China and America alike, it turns out, face a shared threat: they have captured ever less of the gains from economic growth in recent decades.

The “labour share” of national income has been falling across much of the world since the 1980s (see chart). The Organisation for Economic Co-operation and Development (OECD), a club of mostly rich countries, reckons that labour captured just 62% of all income in the 2000s, down from over 66% in the early 1990s. That sort of decline is not supposed to happen. For decades economists treated the shares of income flowing to labour and capital as fixed (apart from short-run wiggles due to business cycles). When Nicholas Kaldor set out six “stylised facts” about economic growth in 1957, the roughly constant share of income flowing to labour made the list. Many in the profession now wonder whether it still belongs there.


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