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There is a lot of angst these days that workers are getting a smaller share of the economic pie.

The fear is we’re losing out to machines, to globalization and the near-monopoly power of superstar tech giants such as Google and Amazon. And that’s led to stagnant wages and rising inequality.

The hard evidence at the heart of this debate is the shrinking share of gross domestic product paid out to workers in wages, salaries and benefits. In Canada and across much of the developed world, the share has dropped markedly in recent decades. In Canada’s case, the ratio has fallen to 55 per cent from 60 per cent in the early 1990s. The decline is even more pronounced in the United States.

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Labour share in several advanced

economies since 1980

Adjusted labour share of income*

Britain

Germany

Sweden

0.65%

U.S.

Canada

0.60

0.55

0.50

0.45

2017

1980

‘90

‘00

‘10

‘85

‘95

‘05

*Adjusted labour share for total economy over GDP at market prices from AMECO, based on ratio of total compensation of employees to GDP multiplied by the ratio of total employment to the number of employees (salaried people).

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: mckinsey & co. (via ameco)

Labour share in several advanced

economies since 1980

Adjusted labour share of income*

Britain

Germany

Sweden

0.65%

Canada

U.S.

0.60

0.55

0.50

0.45

2017

1980

‘90

‘00

‘10

‘85

‘95

‘05

*Adjusted labour share for total economy over GDP at market prices

from AMECO, based on ratio of total compensation of employees to GDP

multiplied by the ratio of total employment to the number of employees

(salaried people).

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: mckinsey & co. (via ameco)

Labour share in several advanced economies since 1980

Adjusted labour share of income*

Britain

Germany

Sweden

0.65%

U.S.

Canada

0.60

0.55

0.50

0.45

2017

1980

‘90

‘00

‘10

‘85

‘95

‘05

*Adjusted labour share for total economy over GDP at market prices from AMECO,

based on ratio of total compensation of employees to GDP multiplied by the ratio of

total employment to the number of employees (salaried people).

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: mckinsey & co. (via ameco)

But the situation may not be as bleak for workers as the numbers suggest. A new study by the McKinsey Global Institute looked at the most obvious culprits of labour’s decline in the U.S. economy. It found the problem has a lot to do with an unusual and largely transitory phenomenon – the dramatic post-2000 boom in the price of many resources and real estate.

The study – A New Look at the Declining Labour Share of Income in the United States – concluded the single largest contributor to labour’s falling share of GDP is what it calls “supercycles and boom-bust.” Alone, these factors account for a third of the trend.

“It’s definitely surprising,” Jan Mischke, a McKinsey partner and co-author of the report, said of the findings. “I didn’t have that effect on my radar screen going into this.”

The study focused on the United States. But Mr. Mischke said in an interview that the same factors are almost certainly at work in the rest of the developed world, including in Canada, whose economy has been heavily affected by the gyrations in commodity prices and real estate.

“It’s very likely that those forces would be at play [in Canada],” he said.

The sharp run-up in prices for such things as copper, oil and homes has meant that a clutch of sectors have dominated the economic landscape in recent years. These industries attracted an outsized share of investment and generated a large share of corporate profits.

Think of what happens to a single producing oil well when the price of crude shoots up to US$100 a barrel from US$50. It creates few new jobs, but it generates a whole lot of profit for the well’s owner. The price spike also draws additional investment in oil exploration, drilling and eventually new production. Relatively little benefit flows to wages.

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A similar phenomenon happened in real estate when home prices boomed in cities such as Vancouver and Toronto. Higher prices attracted a deluge of capital investment in new construction and development, but the spoils haven’t been shared equally with workers.

McKinsey concludes some of the more commonly cited root causes of labour’s decline are relatively less important, including automation (accounting for 12 per cent of the trend), consolidation in the hands of superstar companies (18 per cent) and globalization (11 per cent). The economy’s shift into intangible assets such as intellectual property accounts for another 26 per cent.

The good news is that labour’s share of GDP appears to be stabilizing – in part because of the partial reversal of the commodities supercycle and the cooling in real estate. In part, that’s because the Chinese economy is slowing. As well, manufacturers in developed countries are moving less production offshore to take advantage of lower wage rates in developing countries.

Laval University economist Stephen Gordon says he’s never really fretted too much about labour’s declining share of the economy. He pointed out that in Canada, the years from the mid-1970s to the mid-1990s were a golden age for labour, at least on paper. Unfortunately, it was also a time of high unemployment, stagnant wage growth and rising income inequality. That suggests that a high ratio of labour income to GDP isn’t necessarily a good thing for workers.

If there is a message for government policy-makers in the new research, it’s that they should focus on what they can change, including finding ways to generate higher productivity growth. There isn’t a whole lot policy-makers can do about the price of copper or crude.

It may also be time to put to rest fears of labour’s inevitable decline.

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Or at least, we should stop demonizing globalization and technological change.

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