The amazing Prem Sikka

The data published by the Office for National Statistics show that at the end of 2015, workers’ share of gross domestic product (GDP) sank to 49.7% (see Table D on page 44 of the PDF file downloadable from here), compared with 65.1% in 1976. This is the biggest rate of decline in any western economy. Proponents of neoliberalism claim that workers’ low share of the GDP is the outcome of market forces.

Not really quite sure what “the workers’ share” is. We don’t usually measure GDP in that manner. However, to get to his 49.7 % in Table D he means total compensation, or the labour share of GDP. Note this is not the wage share but the labour share (ie, includes NI etc).

And back in 1976 this was 57% or so of GDP (look up YBHA and DTWMJ here.)

So, not sure what he’s doing at all. Could be that I’ve got it wrong so, if someone who is rather more au fait with the ONS site would like to check my numbers?

It’s also wrong to call the labour share the workers’ share anyway. Other income (17% of GDP or so both times) includes the incomes of the self employed….

As to what has actually changed over time. The low capital share back then is known to have been unsustainable. Not enough to cover depreciation near enough, let alone produce profit. So, it’s right that it has risen from 16% to 21%. Which is about long term average. What Prem is doing here is comparing to a time when that capital share was unusually low but presenting it as the norm.

The other big change is taxes and subsidies on production, from 7.7% to 12% of GDP. That’s essentially the rise in VAT over these decades.

As to the actual point that Sikka is trying to make, he’s claiming that Corbyn will take us back to those halcyon days of the mid-70s.

Oh joy.

9 thoughts on “The amazing Prem Sikka”

  1. The other big change is taxes and subsidies on production, from 7.7% to 12% of GDP. That’s essentially the rise in VAT over these decades.

    Taxes aren’t production.

  2. This is measuring GDP by incomes. And we do indeed include taxes on and subsidies to production in this GDP measure.

  3. I think Sikka’s analysis is correct. From I can see on the internet and various related studies the biggest drop in labour’s share of GDP occurred between 1981 and 1997. It then stabilised at around 53-54% possibly due to a statutory minimum wage and started declining again from 2011 onwards. The notes at the ONS website say that the data consists of “compensation of employees (income from employment) and mixed income (self-employment income) for the whole economy … Compensation of employees – which includes both wages and salaries, and employers’ social contributions”.

  4. @ Taxbod
    I can’t be bothered to look up the data because you’ve missed Prem Sikka’s sleight-of-hand in excluding the self-employed who have vastly increased in number since 1976.
    Workers’ share =A+B, B has increased (possibly doubled), so you just say A has decreased asa %age, implying that workers are worse-off, which is patently untrue. A smaller %age of a much larger pie meaning a lot more pie, shared among a smaller %age of the population.

  5. @Taxbod

    You’ve misunderstood the stuff

    “The income approach measures income generated by production in the form of gross operating surplus (profits), compensation of employees (income from employment) and mixed income (self-employment income) for the whole economy.”

    In this case the “income approach” is the income approach to the calculation of GDP. (Compensation, GOS, Mixed income). This does not mean that total compensation of employees includes self employed income, which is the mixed bit.

    If you look at Table D on page 44 of the pdf that the cretin Sikka refers to, you can see this called “Other income”, which is a mix of “mixed income” and “operating surplus of the non-corporate sector”.

    Here’s a link to an old post from someone who noted an earlier spat between TW and RM.

    Total compensation has fallen as a percentage, although 76 is a stupid base year, and it has not become profits, but instead a mix of taxes and other income. Most probably the rise of self employment.

    So for 2015,
    Total compensation employees: 49.7%
    COS: 21.1%
    Other income 17%
    Taxes: 12.1%

    So basically what John77 said.

    In a debate on economic statistics between Prem and TW, the odds always favour Worstall.

  6. @Ken and John 77. You are wrong. I am an avid follower of the writing of Andrew Lilico, an economist with Europe Economics, and chairman of the IEA Shadow Monetary Policy Committee, and he uses the ONS data because it is what it says on the tin.

  7. @Tax Bod

    We’re using the ONS data too. All we’ve said is that you cannot use the total compensation of employees/GDP (DTWM/YBHA) to say anything about the workers’ share of national income because the proportion of self-employed has risen and thus workers who used to be included in DTWM are now part of CGBX (other income).

    Back in 1975, 8.7% of workers were self-employed, today that percentage is around 15%.

    1975 – 2014

    I use the ONS total compensation data for the YoY data on what is happening to compensation – which I suspect is what Lilico would use it for, but when we talk about shares of national income over time, the long run shift to self employment is important – Sikka is just wrong.

  8. @ Taxbod
    The ONS data is usually what it says on the tin and it does tell us when it knows that it isn’t (e.g when it is quoting Household Survey data which alleges that total benefits received are less than two-thirds of total benefits paid out by HMG). However Prem Sikka is taking one ONS number and pretending that it means something thaty ONS do NOT say on the tin. The problem is not with the ONS data, it is with Prem Sikka’s misquotation of it.

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