An inquiry into the declining labour share of national income and the consequences for economies and societies

Abstract

For over three decades, the share of national income going to labour in most countries has been in decline. Conversely, capital?s share of national income has increased. The trend in the decline in labour?s share of income has been less noticeable as national income has continued to rise. The reasons for the decline in labour share are complex and will be analysed. This decline has been secular, other than a small recent temporary reversal in some countries. This paper will examine (i) the trends in this decline in many countries, including Ireland; (ii) the definitional issues and trends within both the labour and capital share; (iii) its causes; and (iv) the implications for economic development and the consequences of this shift on economies and societies. The decline in labour?s share has contributed to increased inequality in the distribution of national income and there has also been a substantial redistribution within the labour share. The decline may have major consequences for economies, with declining demand and other impacts and also for societies, where social cohesion may be threatened by a continuation of the trend.