The Labor Share Since World War II

The Labor Share Since World War II.

Labor Day, 2021.

Happy Labor Day America! We’ve been screwed out of at least $30 trillion.

Thanks to the devastation of our middle class, Americans are stratified, polarized, and ready for violence. But this wouldn’t be the first time a middle-class republic went down in flames.

Mankind’s First Experiment with Democratic Republics Ended Badly Because the Middle Classes were Ruined.

146 BC. Rome defeats Carthage and Corinth, attaining dominion over the Mediterranean World. Historian Victor Duruy tells us what Roman elites did next:

After having pillaged the world as praetors or consuls during time of war, the nobles again pillaged their subjects as governors in time of peace; and upon their return to Rome with immense riches they employed them in changing the modest heritage of their fathers into domains vast as provinces.

Victor Duruy

146 BC-27 BC. The Roman middling farmer class is reduced to a multitude of landless paupers. They drift into the urban center, where their precarity and dependency gave justification and force to the patronage of the emperors and the ultimate ruination of mankind’s first experiment in republican government. (Would you like to know more?)

Mankind’s Second Experiment with Democratic Republics is Going Badly Because the Middle Classes are Being Ruined.

1776. America is born a middle class democratic republic, women and slaves excepted. The Founders and contemporary observers describe America as a middle class nation. Modern researchers confirm these conclusions. The richest American owns less than 1,000x the median household net worth. Mankind’s second experiment with democratic republics commences.

1945. America emerges as champion of World War II, attaining dominion over the Modern World. The data tell us what American elites did next. Since 1947 (the first year of Bureau of Labor Statistics data), they’ve siphoned at least $30 trillion from American labor based on our calculations:

Year	GDP (1)	Labor Share (2)	Capital Share (2)	Delta (3)	Damages (4)
1947	2036.2	0.654	0.346	0	0
1948	2120	0.6495	0.3505	0.0045	9.54
1949	2108	0.6428	0.3573	0.0113	23.72
1950	2291.1	0.6313	0.3688	0.0227	52.12
1951	2475.4	0.628	0.372	0.026	64.36
1952	2576.7	0.637	0.363	0.017	43.8
1953	2697.5	0.644	0.356	0.01	26.98
1954	2681.9	0.6458	0.3543	0.0083	22.13
1955	2873.2	0.6305	0.3695	0.0235	67.52
1956	2934.4	0.65	0.35	0.004	11.74
1957	2996.2	0.65	0.35	0.004	11.98
1958	2974	0.651	0.349	0.003	8.92
1959	3180.2	0.6425	0.3575	0.0115	36.57
1960	3262.1	0.6548	0.3453	-0.0007	-2.45
1961	3345.7	0.6503	0.3498	0.0037	12.55
1962	3550.7	0.641	0.359	0.013	46.16
1963	3705.3	0.636	0.364	0.018	66.7
1964	3918.8	0.6293	0.3708	0.0247	96.99
1965	4173.4	0.622	0.378	0.032	133.55
1966	4448.7	0.6218	0.3783	0.0323	143.47
1967	4570.7	0.6263	0.3738	0.0278	126.84
1968	4795.4	0.6265	0.3735	0.0275	131.87
1969	4945.2	0.6395	0.3605	0.0145	71.71
1970	4954.4	0.6455	0.3545	0.0085	42.11
1971	5117.6	0.6323	0.3678	0.0218	111.31
1972	5386.7	0.6313	0.3688	0.0228	122.55
1973	5690.9	0.6368	0.3633	0.0173	98.17
1974	5660.1	0.6415	0.3585	0.0125	70.75
1975	5648.5	0.624	0.376	0.03	169.46
1976	5952.8	0.6158	0.3843	0.0383	227.69
1977	6228.1	0.617	0.383	0.037	230.44
1978	6572.8	0.6203	0.3798	0.0338	221.83
1979	6780.9	0.6278	0.3723	0.0263	178
1980	6763.5	0.6353	0.3648	0.0188	126.82
1981	6935.2	0.6263	0.3738	0.0278	192.45
1982	6810.1	0.6383	0.3618	0.0158	107.26
1983	7122.3	0.619	0.381	0.035	249.28
1984	7637.7	0.6145	0.3855	0.0395	301.69
1985	7956.2	0.6138	0.3863	0.0403	320.24
1986	8231.7	0.6215	0.3785	0.0325	267.53
1987	8516.4	0.6293	0.3708	0.0247	210.78
1988	8872.2	0.631	0.369	0.023	204.06
1989	9198	0.6215	0.3785	0.0325	298.94
1990	9371.5	0.6265	0.3735	0.0275	257.72
1991	9361.3	0.6265	0.3735	0.0275	257.44
1992	9691.1	0.6263	0.3738	0.0278	268.93
1993	9957.7	0.6188	0.3813	0.0353	351.01
1994	10358.9	0.6095	0.3905	0.0445	460.97
1995	10637	0.6068	0.3933	0.0473	502.6
1996	11038.3	0.6068	0.3933	0.0473	521.56
1997	11529.2	0.6073	0.3928	0.0468	538.99
1998	12045.8	0.6195	0.3805	0.0345	415.58
1999	12623.4	0.6193	0.3808	0.0348	438.66
2000	13138	0.6315	0.3685	0.0225	295.61
2001	13263.4	0.6315	0.3685	0.0225	298.43
2002	13488.4	0.6138	0.3863	0.0403	542.91
2003	13865.5	0.6065	0.3935	0.0475	658.61
2004	14399.7	0.6023	0.3978	0.0518	745.18
2005	14901.3	0.5915	0.4085	0.0625	931.33
2006	15315.9	0.5925	0.4075	0.0615	941.93
2007	15623.9	0.5963	0.4038	0.0578	902.28
2008	15643	0.5985	0.4015	0.0555	868.19
2009	15236.3	0.583	0.417	0.071	1081.78
2010	15649	0.5698	0.4303	0.0843	1318.43
2011	15891.5	0.5715	0.4285	0.0825	1311.05
2012	16254	0.5703	0.4298	0.0838	1361.27
2013	16553.3	0.5668	0.4333	0.0873	1444.28
2014	16932.1	0.5683	0.4318	0.0858	1451.93
2015	17390.3	0.5743	0.4258	0.0798	1386.88
2016	17680.3	0.5938	0.4062	0.0602	1064.84
2017	18079.1	0.5962	0.4038	0.0578	1045.86
2018	18606.8	0.5943	0.4057	0.0597	1110.34
2019	19032.7	0.5971	0.4029	0.0569	1083.13

Total: $28,815.79 trillion. This is the amount transferred from labor to capital since 1948, calculated as a deviation from the run-rate in 1947.

This figure exceeds the entire net worth of Japan. Of the United Kingdom and France put together. Of the continents of Africa, South America, and Australia combined. Domains as vast as provinces indeed. That’s without 2020 and 2021 numbers.

But it’s even worse than that. Because the “labor share” includes the value of nonqualified stock options. Translation: Economists are including huge corporate executive paydays and net exercises of publicly traded securities in the “labor share”. Meanwhile, they look for reasons (like depreciation) to reduce the capital share, which makes the labor share look bigger than it is.

To those who would object that these numbers distort reality, consider this reality: The median bank account balance is $5,000. The median retirement account balance is $65,000. A third of Americans have less than $1,000. The worker-CEO pay ratio has widened from 1:20 in 1965 to 1:350 today. And above all, America’s social aspect ratio (top-to-median household net worth) has exploded from 1,000:1 in 1776 to 1,500,000:1 in 2021.

Behold the desolation of America’s middle class in a single glance.

We Must Intervene to Save Our Middle Class.

Is this amount recoverable? Not likely. Should we try? No. Let our actions be only prospective. But these aren’t the point. The point is that we have the patriotic duty to learn from history, and the natural right to defend our middle class from anyone whose greed exceeds their patriotism. We also have the authority and the mandate from the Founding Fathers:

We have it from John Adams:

Property Monopolized, or in the Possession of a Few is a Curse to Mankind. We should preserve not an Absolute Equality – this is unnecessary – but preserve all from extreme Poverty, and all others from extravagant riches.

John Adams

We have it from Thomas Jefferson:

An equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind.

Thomas Jefferson

We also have it from George Washington, James Madison, and Alexander Hamilton. (Would you like to know more?)

American patriotism can be summarized by this: Devotion to the Democratic-Republican Model of Government. Patriotism requires egalitarianism. Egalitarianism requires action. Action requires a plan. The plan requires the application of mathematical ratios to our political society.

The Plan is Ready for America, and America is Ready for the Plan.

Our calculations were benchmarked against 1947, when America was in the good hands of the Greatest Generation. When Capitalism was more vigorous and modest than it has become. Let’s restore Capitalism to its former greatness. To do this, the plan is not Socialism. The plan is Rationism. (Would you like to know more?)

2021. The Plan is submitted to Congress and presented to the American people for their consideration.

Notes & Discussion:

This analysis and the conclusions presented have not been reviewed or endorsed by any government agency or any of the researchers or organizations cited below.

The calculation of labor share damages calculated and then summed up the annual impact to the labor share of US Gross Domestic Product (GDP) based on deviation from the figure given for 1947, using the first number in the series as the benchmark or run rate.

¹GDP data from the United States Bureau of Economic Analysis, expressed in billions of 2012 chained dollars. Nonfarm business sector (covers 75% of US economy; excludes general government, nonprofit institutions, private households, the Armed Forces, and farms). https://www.bea.gov/resources/learning-center/what-to-know-gdp

The calculations above are based on gross GDP numbers. No netting reductions are applied, e.g., for depreciation.

²Labor and capital GDP share data 1947-2015 based on data from the United States Bureau of Labor Statistics. https://www.bls.gov/opub/mlr/2017/article/estimating-the-us-labor-share.htm

2016-2019 data based on data retrieved from the St. Louis Fed (Citation: University of Groningen and University of California, Davis, Share of Labour Compensation in GDP at Current National Prices for United States [LABSHPUSA156NRUG], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LABSHPUSA156NRUG, September 5, 2021.)

³The United States Government has calculated the labor share and capital share of GDP since 1947. The “Delta” calculates the percentage difference in each year from the 1947 benchmark. The data shows that the labor share was lower in every year since 1947, with the sole exception of 1960.

⁴The calculation of “Damages” multiples each year’s Delta by the total GDP for that year. The table presents the damages in billions of chained 2012 dollars. On the data presented, the aggregate of all years equals $28,815,792,381.02.

This analysis is only intended to calculate the damages to labor share. It is not intended to describe the causes or impute blame for the decline of labor share. Various reasons are given. Some explanations imply malice or neglect, such as expatriation of labor, labor-saving technology, and abuse of market power. Other explanations attribute the damages to the “weather”, such as various super cycles, depreciation of capital assets, and superstar effects.

The relative GDP shares are not mapped out against income or wealth quintiles. If this were done to isolate losses specific to the middle class, a small add-back to the bottom quintiles may be appropriate as some capital gain would be imputed to the bottom four quintiles. However, 2019 tax data suggests that barely over 3% of capital gains are attributable to bottom 80%.

As noted, the US Bureau of Labor Statistics (BLS) includes the value of nonqualified stock options in the “labor share”. As a practical matter, this likely grossly overstates the labor share of GDP in a manner that far outweighs the impact of any and all possible netting computations. The vast majority of executive pay takes the form of nonqualified stock options due to limitations on granting incentive stock options under Internal Revenue Code Section 422 and Section 701 of the 1933 Securities Act. (https://apps.bea.gov/scb/pdf/2008/02%20February/0208_stockoption.pdf) In simple terms, CEO, NEO, and other high-level corporate executive compensation derived from nonqualified stock options is treated as “labor share” by BLS. Note too that stock options have not always been as significant a component of executive pay as they now are. (https://corpgov.law.harvard.edu/2014/10/02/what-has-happened-to-stock-options/). Removing stock options from the category of “labor share” to capital share where it properly belongs would provide a more accurate calculation of the true damage to the labor share since World War II.

Featured image represents a modification of Official U.S. Treasury poster WFT 942, Object no. I.37. 1944, which is in the Public Domain. https://dc.library.northwestern.edu/items/479a476a-7dbd-42b1-b731-487468c9aad7