The labor share of income in the US is at its lowest post-war level
The U.S. labor share of income recently hit a post-war low, but a new Federal Reserve analysis suggests the post-COVID decline aligns with historical recessionary patterns rather than a new systemic shift. This economic data sparked extensive debate on Hacker News about the long-term implications of wealth distribution, technology's impact on labor, and the underlying causes of economic inequality. Commenters wrestled with whether this signals a return to old patterns or merely obscures a deeper, worrying trend of capital dominance.
The Lowdown
A report from the Federal Reserve Bank of New York examines the recent decline in the labor share of income in the U.S., which has reached its lowest point since World War II. The labor share, representing the fraction of economic output paid to workers, had seen a significant and sustained drop since the early 2000s, with a particularly sharp fall during the Global Financial Crisis.
Key findings from the analysis include:
- The labor share experienced a sharp post-COVID decline, reaching an all-time post-war low, following a period of stabilization in the 2010s.
- The dynamics of this post-COVID decline — an initial sharp increase during the recession followed by a modest decline and flattening — are remarkably similar to patterns observed in pre-2000 recessions.
- Unlike the 2000s, where the labor share saw steeper declines during expansions and failed to rebound, the recent trend suggests a more cyclical behavior.
- The decline is primarily driven by changes within industries (e.g., how much a sector pays its workers relative to its output), not by economic activity shifting between industries (i.e., reallocation towards sectors with inherently lower labor shares).
The authors conclude that the post-COVID decline in the labor share does not represent a distinct new phenomenon but rather follows established cyclical patterns and is driven by the same within-industry forces observed in earlier economic downturns.
The Gossip
Historical Hooks and Hidden Horrors
Many commenters honed in on the article's conclusion that the post-COVID labor share decline mirrors pre-2000 recession patterns, questioning if this is genuinely reassuring. While the short-term cyclicality might be 'normal,' the broader, massive decline in labor share since the early 2000s remains a significant concern, attributed by some to deeper, ongoing structural shifts like globalization, technological advancement, and a long-term erosion of worker bargaining power. The sentiment is that while the immediate crisis might follow old scripts, the overall play has changed dramatically.
Wealthy Woes and Wanting Wage Wonders
A dominant theme explored the concentration of wealth and income, arguing that the declining labor share reflects an increasing capture of economic output by capital owners and the 'ultra-wealthy.' This discussion quickly broadened to the perceived economic struggle of the average American, with a heated debate about the definition and prevalence of 'abject poverty' in the U.S. Commenters also discussed how the wealthy legally avoid traditional 'income' for tax purposes, highlighting loopholes and differing definitions of income versus capital gains, further skewing the picture of distribution.
Healthcare's Heavy Hand in Human Hiring
A notable tangent explored the role of healthcare costs in the labor share debate. One commenter suggested that including employer contributions to health insurance might significantly increase the perceived labor share. This sparked a broader discussion where others clarified that the article's 'total compensation' measure already includes benefits, and that the unique and exorbitant costs of U.S. healthcare, often tied to employment, are a major drag on worker compensation and overall economic efficiency, regardless of how it's categorized in this specific metric. The inefficiency of the U.S. healthcare system, particularly the role of insurance companies and government intervention, was debated as a core problem.
Capitalist Critiques and Consequential Changes
Commenters delved into the fundamental economic theories and political forces behind the declining labor share. Many attributed it to capitalism's inherent drive to minimize labor costs, exacerbated by neoliberal policies, union busting, and globalized supply chains. There was discussion about whether technology, especially AI, signals a future where human labor has little intrinsic value, contrasting with Marxist views on labor's central role. Suggested solutions ranged from breaking up monopolies and re-evaluating trade policies to unionization and addressing wealth inequality through systemic changes, even invoking comparisons to 'Monopoly' or calling for a 'socialist' shift.