Labor’s Last Hope?

Primary Accumulation 3 (Henry Ford) by Hugo Gellert, 1933
Metropolitan Museum of Art/Art Resource
‘Primary Accumulation 3 (Henry Ford)’; lithograph by Hugo Gellert, 1933

There has now been more than half a century of worsening economic inequality in America. Until the late 1960s, incomes had been growing more equal for nearly four decades: through the Great Depression and World War II and then the Korean War, through the placid Eisenhower years, even through most of the Vietnam War and the social turmoil of that time. Many thoughtful observers expected the trend to continue indefinitely. Ever greater equality was supposedly the hallmark of a maturing economy and an advancing democracy. But 1968 was the turning point. As the years passed, what at first seemed a statistical blip became a matter of curiosity among economists, and in time a focus of increasingly widespread public concern. In 2017, the standard measure of inequality of family incomes was 29 percent higher than it had been fifty years ago. Millions of Americans who take no interest in discussing economic issues as such, much less in examining economic data, complained about the increasingly visible concrete manifestations of ever greater inequality.

Along the way, however, the structure of economic inequality has changed. From 1968 until sometime in the 1990s, less equal incomes mostly reflected diverging wages, as the most educated and skilled workers earned ever more than those in the middle, while those in the middle earned ever more than those with the least education and the least valuable skills. The issue that had obsessed theorists during the nineteenth century—the division of the fruits of economic production between people who do the work and those who own the capital that the workers use—was of little interest, since the division never seemed to change much. In the mid-1950s, 63 percent of all income generated by American business was paid out to labor and 37 percent to capital. In the mid-1990s the split was 62 percent versus 38 percent.

The last few decades have been different. On average over the past five years, wages, benefits, and other returns from working have garnered only 57 percent of what American business has produced. The other 43 percent has accrued to business owners, mostly including corporations and their shareholders. The change from two decades ago may seem small, but 5 percent of the nation’s total business income is well over $500 billion. If it had gone to workers rather than owners, inequality would have been significantly reduced. Moreover, like the earlier pattern of widening wage differentials that favor education and skills, this shift away from labor and toward capital is not unique to America. Over the last few decades the labor/capital split in Germany has moved from 67/33 to 60/40, and in Japan from 55/45 to 52/48. Even in China—still supposedly a communist country—it has gone from 43/57 to 38/62.

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