So what is Howard Reed doing here?

Life has been getting tougher for labour for decades, with the real break coming in the 1980s. Over the past 35 years there has been a marked shift from wages to profits in the UK economy, with labour\’s share of national income falling from 59% in 1977 to 53%

Odd figures: but the trend\’s right.

in 2008 and the share of profits up from 25% to 29% over the same period

And very odd figures. For the profit share just ain\’t 29%. He\’s doing something naughty there by aggregating something else into the profit share.

What appears to have happened is that the rising profit share went to the financial sector and has been used to boost City pay and bonuses rather than used for new investment. In the bracing climate, few groups of workers are able to garner the full fruits of their labour: Premier League footballers are one, investment bankers another.

That doesn\’t actually work. Bankers certainly are on PAYE. So their incomes (yes, and their bonuses) is part of the labour income, not the profit share.

Sadly, we\’ll have to wait for the paper to be published before we can see what they\’ve done. By which time the \”profits are screwing the worklers\” meme will be widespread.

3 comments on “So what is Howard Reed doing here?

  1. Here’s another possible explanation. Thanks to incessant rises in National Insurance rates, both employers and employees, increasing numbers of high earners choose to pay themselves via one-man limited company dividends instead of through ordinary PAYE. This year alone we learned that the BBC has over 2,000 such disguised employees toiling away within its walls, not to mention the head of the student loans company. Such dividend income would (presumably) be counted as profit, not as labour, in the national statistics.

  2. But it is fair to do this to some extent. Most people’s salaries contain an element of rent. This is acutely the case in places (like the USA) with weak employment protection laws and where hence moving jobs is relatively low-risk.

    Alternatively, if you really think investment bankers earn market incomes based on a free and open labour market I have some bridges over swampland in Florida you might be interested in. Premier league footballers absolutely do get free open labour market wages – bankers get far more than a free and open labour market would pay them. Just because that labour market is closed with the collusion and knowledge of banking management (frankly because bank managers are all ex-bankers themselves) does not mean it isn’t closed.

  3. “But it is fair to do this to some extent. Most people’s salaries contain an element of rent.”

    Then we should do it for everyone (including of course the worst rent seekers of all, the public sector) and not only for the bankers.

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