Opinion: Why are wage gains so weak?
By Robert J. Samuelson Robert J. Samuelson Columnist focusing on economics Bio Columnist May 22 at 12:32 PM After correcting for inflation, wage gains remain sluggish. In April, average weekly earnings for nonsupervisory workers were up 3 percent from a year earlier, to $785.55. Meanwhile, prices as measured by the consumer price index were up 2 percent.
Other theories blame sluggish wage growth on changes in the labor market. The decline of unions — a phenomenon that stretches back to the 1960s — has weakened workers’ bargaining power. Globalization has had the same effect, because in many industries production can be moved abroad where wages are lower. China is an obvious example.
We now have a new theory from the McKinsey Global Institute, the research arm of the McKinsey consulting company. It has long been known that the labor share of national income has been shrinking. In 1947, the labor share was 65.4 percent of GDP; in 2016, it was 56.7 percent of GDP. These figures combined all forms of labor compensation: wages, salaries, fringe benefits.
The answer is: about a quarter. That’s the impact of the shift from labor to capital income. The rest of the wage slowdown reflects poor productivity growth and the tendency of high-income wages and salaries to grow faster than middle-income wages. If the distribution between labor and capital income had remained unchanged since 1998, the average American worker would have a whopping $4,000 in extra annual pay, according to McKinsey’s calculations.
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