We\’ve had the usual suspects over the past few months pointing to the falling share of labour income. That is, the portion of GDP which goes to labour is falling.
Clearly, this is terrible and shows that the bastard capitalists are just being too greedy.
Sadly, just another example of those usual suspect\’s ignorance of the numbers. One of the causes is actually this:
Barclays estimates that nearly 480,000 new businesses were created over the past year – a record – and said official statistics revealed that self-employment now stood at the highest level relative to the total working population for 75 years.
The latest official Labour Force Survey figures for October show a record 4,138,000 people were self-employed, up 4pc year on year. “It is the highest absolute number since records began,” said Dr Roberts.
For when we calculate the labour share of income we do not just look at wages and then assume that everything else is profits.
Actually (and from memory, so not in every detail) we have labour income, profits, employer paid taxes on labour (ie, employers\’ NI), subsidies, indirect taxes (like VAT) and \”mixed income\”.
If profits stayed static (which I do not claim they have over the decades) but employer NI rose then the labour share would fall. If subsidies rose, or VAT increased (which is most certainly has since the highest recorded labour share in the mid 70s, ie, when we introduced VAT) then the labour share would fall.
Which brings us to mixed income. It\’s always rather a problem in measuring the incomes of the selfemployed. It\’s actually a problem for the selfemployed and their advisors, let alone the statistical authorities. For some portion of their income is return from capital (they are running their own business and even the reputation is capital in a sense) and some portion is straight labour income. It\’s always rather difficult to unpick exactly what the portion is. So, we measure the incomes of the selfemployed as \”mixed income\”, not as part of either capital income (ie, profits) or labour income.
At the extreme, if we were all selfemployed then the labour share of income would be zero. At the not extreme, a rise in the number of selfemployed means a fall in the labour share of income.
We have a record number of selfemployed, we have a low labour share of income. Yes, the two are connected. No, I do not say that this is the entire cause: I do say it\’s some of it.