Timothy Taylor looks at an article on the secular decline in labor’s share of income, and he concludes
These explanations all have some plausibility, but it isn’t clear to me that, taken together, they adequately explain the fall of more than four percentage points in labor share in the decade or so from the early 2000s (roughly 61%) to the years right after the Great Recession (just above 56%). The labor share does show some sign of rebounding in the last couple of year, and it will be interesting to see whether that turns out to be true bounce-back or a damp squib.
“Labor’s share” is one of those macro-Marxist concepts that I distrust. It ignores the heterogeneity of labor. Some workers have few skills. Others have highly marketable skills. It ignores heterogeneity of capital. But perhaps even more important, it ignores the fact that most of us are Garett Jones workers, who do not produce output but instead produce organizational capital.
As an example of a firm with a high labor “share,” consider a 1990s dotcom, which has lots of dreams but little revenue. For many of the dotcom darlings, labor’s share was way over 100 percent, and hence they went bust. Those that survived are now living off the organizational capital that they developed back in the day, which could make for a low labor share today.
In some (many?) firms, the labor share is arbitrary. For example, my guess is that as of now the “labor share” at Google is low, because the organizational capital that it built up during its first decade of existence is very valuable relative to the necessary labor input to keep it running. But Google has a lot of leeway. The more it invests today in organizational capital (research into driverless cars and such), the higher will be its (current) labor’s share. The more it just sticks to its existing business and trims workers in the research areas, the lower will be its labor’s share.