There is no standard measure of the “labor share” — worker compensation as a fraction of gross domestic product — and commonly cited figures are inaccurate. They often omit important sources of employee compensation or distort “corporate” income by failing to account for asset depreciation or by including income from noncorporate or foreign sources. When economists correct these errors, the purported labor-share decline becomes more modest or reverts to historical norms.
Just as important, a rising share of corporate income benefits the 62 percent of American workers who own equities, padding their 401(k)s, IRAs, pension funds and education and health savings plans. With “Trump accounts” for millions of children now coming online, that figure should soon increase, further undermining the zero-sum characterization of a declining labor share as “capitalists” taking from “workers.”
Finally, inasmuch as the decline remains concerning, government policy shoulders much of the blame. In a paper published last month, economists Byunghee Choi and Choongryul Yang find that 45 percent of the declining labor share between the late 1990s and 2019 owed to a reduction in U.S. companies’ hiring and firing. This “rise of inaction” was driven by the increasing costs that firms incurred for worker-related regulatory compliance and employer-provided health insurance.
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That is consistent with other research. Economist Niklas Engbom examined 23 OECD economies between 1991 and 2015 and found that nations with more dynamic labor markets enjoyed faster wage growth. Policies that raised hiring costs — business regulations, labor taxes, employment-protection laws — also reduced labor-market fluidity. Research from Columbia University has found similar effects, which recent events bear out: Immediately after the pandemic, the United States — Engbom’s base case for a “typical high-fluidity country” — experienced lower unemployment and faster wage growth than Europe, where governments discouraged employers from changing headcounts.
Nor should our nation’s imperfections blind us to the tremendous inheritance we have received. Even a quick glance through history and around our world today confirms how rare it is for a nation to be founded on the hope of realizing equality, liberty and self-government for its citizens. As Daniel Webster observed, it took thousands of years of human history for a nation devoted to the Declaration’s three great ideas to arise, and “miracles” like that “do not cluster.”
The legacy of the Declaration, though, owes only a partial debt to the genius of the document and those who wrote it. Its real guardian, and its hope for the future, lies in the hearts of the American people. Equality, liberty and self-government became the nation’s creed because Americans in generation after generation chose them. And the survival of those ideas depends on each passing generation learning about them anew, engaging with the history that gave rise to them, and choosing them all over again.
Yes, we have our differences. But that was true even at our nation’s founding. Americans hotly debated whether to part ways with Britain. The first vote on the Declaration of Independence split the colonies. Federalists and Anti-Federalists disagreed over whether to ratify the Constitution. Today Americans disagree strongly about important matters, as they always have and perhaps always will. But that, in many ways, is our nation’s greatest strength. By allowing everyone to speak and vote, we seek to harness the ideas of not only one ruler or group of elites; we seek to tap the full wisdom of the American people. In the face of disagreement, we speak and listen, debate and compromise, vote and then chart our way forward together. All of that is exactly what the Declaration hoped for us, and all of it lies at the core of the great American experiment.
Mitch Daniels rightly worries about the U.S. government’s outlandish fiscal recklessness. A slice:
Let’s stipulate that AI will be the transformative wonder that its inventors foresee; that the CBO and other forecasters have often tended to underestimate U.S. economic growth, especially in environments of lightened regulation and taxation; and that the United States somehow sails through an unprecedented streak without a single costly exogenous blow.
It still ain’t enough.
Otto von Bismarck supposedly proclaimed, “There is a Providence that protects idiots, drunkards, children and the United States of America.” After decades reelecting a Congress whose spending behavior qualifies for the first three categories, we can’t count on providential salvation.
This is no time to be touting miracle cures to justify further procrastination. Until America acts to make major changes in laws on the books, the right side of our national business-plan chart will continue to show a sharp downward line and the label, “Big trouble happens here.”
Matthew Lau warns that the Canadian government’s practice of industrial policy through a sovereign wealth fund will harm Canadians. Here’s his conclusion:
Far from driving long-term growth and competitiveness, the Liberal government’s economic policies, including its industrial policy, carried out in large part by the federal entities named in its sovereign wealth fund announcement, have contributed to a productivity crisis and a collapse in business investment in Canada. Carney’s new proposal only promises more of the same.
