One reason to reject the IPPR report is that they're using the wrong numbers

The IPPR has that economic justice report out telling us that we've simply got to uproot free market capitalism because it shafts the workers. Any of which assertions could be true of course, not that we'd agree. However, trying to support such assertions does require the use of the correct numbers. Which isn't, to put it mildly, what is being done.

A little bit of theory. The national income can be split up into the capital share, labour share, self employed or mixed income and subsidies to production and taxes upon consumption. That labour share has been falling gently in recent decades but it's not the profit share which is rising, instead the other two are. There're more self employed people around and we might well have noted that doubling of the VAT rate since introduction.

Within the labour share we can talk about wages and salaries and then the other costs of employing labour. To which there's an importance. A falling share of wages and salaries is entirely consistent with a static labour share. It would mean that we are loading employers with more costs to employ labour. Say, raising national insurance contributions, insisting upon the funding of pensions, an apprenticeship levy and so on. These are costs of employing labour but not wages and salaries, they're part of the labour share but not of wages.

So, the numbers the IPPR wants us to look at are as that chart above. But that's not the labour share, they've used the ONS figures for wages and salaries. If we actually wanted the labour share figures we should use these numbers here.

With an index starting at 100 in the year 2000, wages are up at 166, labour costs at 171.4 and other costs per hour at 211.9. That is, one good reason why wages haven't been rising along with the rest of the economy is because we've been loading other costs onto the price of employing people. Those costs coming out of the labour share.

We're quite willing to agree that the labour share has indeed fallen in recent decades. Also that the wage share has fallen more recently. But we do think it's worth insisting on using the correct numbers so as to examine how an why this is. Barring that mid-70s slump in the profit share there's nothing odd about that cut of the economy today. Thus the solution to that falling labour share might well not be in the profit share. Could, for example, be over in the VAT area, just as a perhaps. Similarly, the wage share might not be to do with the profit share but with the non-wage labour costs imposed by successive governments.

Again, while we've very strong opinions on such - to the point of a pantomime "Oh Yes It Is!" - that's not the point we want to underline here. Rather, if we're to investigate we really must, just must, start with the right numbers.

At which point we'd just make a little note. All of the discussions here start with notes about the labour share and often enough and wrongly with the wage share. Then assume that if the workers ain't getting it then the capitalists must be. Why is that? Perhaps because examining the profit share directly wouldn't tell us that same message. Which wouldn't be politically convenient, would it? For if the bosses aren't getting it and the workers aren't then we'd have to do some real work to find out who is, wouldn't we? That's it's government swallowing the economic growth wouldn't accord with a number of narratives....

 

 

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