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News Link • Economy - Economics USA

Barry Ritholtz: The Heart of the Matter

First up, Labor Share, which the MLR defines as: Labor share is the portion of output that employers spend on labor costs (wages, salaries, and benefits) valued in each year’s prices. Nonlabor share—the remaining portion of output—includes returns to capital, such as profits, net interest, depreciation, and indirect taxes. Here’s what has become of Labor Share: (NOTE: BLS provides (and FRED captures) this series as an Index, not a Level, with 2005 = 100. BLS advises me that the 2005 Level = 60.6. Therefore, I have taken the entire Index (Series identified above) and multiplied it by .606 to get the percent Labor Share above. It continues to bewilder me that more is not made of this troubling metric.) As the MLR points out: Labor share averaged 64.3 percent from 1947 to 2000. Labor share has declined over the past decade, falling to its lowest point in the third quarter of 2010, 57.8 percent. The change in labor share from one period to the next has become a major factor contributing to the compensation–productivity gap in the nonfarm business sector. We are now squarely face-to-face with the consequences of the decades long gutting of the middle class that was the backbone of our economy for so long. Without taking some solid, clearly-defined steps, the middle class will undoubtedly move from an endangered species to extinction. The tipping point may already have been passed and, even if it hasn’t, I’m still not optimistic there’s any interest in D.C. to make the requisite policy changes.

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