Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

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Sunday, June 19, 2011

Labor's Share

Here is a link to the FRED graph of Labor's Share that I mentioned earlier.

I'm going to have a close look, which may or may not lead to any conclusions.

Observations, from the FRED graph:
1 - Peaks.
1-a.  Labor's share is almost always rising immediately before and then into the first part of a recession.  Exceptions are 1949 and 2008. 
1-b.  Labor's share always declines during a recession.  That decline might or might not continue for some time after the end of the recession, but in each case, a recession leads to a new local bottom in Labor's share.
1-c.  Therefore, Labor's share always peaks after a recession has started, and the recession leads into the next cyclical bottom in Labor's share.

Now, lets have a look with a different emphasis.

Here, we have the quarterly data, color coded by President's party, an 8-Yr moving average, and an envelope defined by the averages of peaks and valleys from '47 to '85.

2 - A Secular Change.
2 - a.  Prior to 1985, the oscillations were approximately contained between the values of 104.3, and 110.3
2 - b.  During that period, both D and R administrations were characterized by gyrations.  If anything, the R admins might have fared a bit better.
2 - c. During the period, oscillations of the 8-Yr Avg were damped, stabilized at 106.6 by late 1977, and didn't budge for 8 years.
2 - d.  After that, there was a bit of a decline.

3 - The Great Stagnation.
3 - a.  During the entire Bush I admin and Clinton's first term, labor's share plummeted, broke out of the old channel, and reached a new low of 101.11.
3 - b.  By the end of Clinton's admin, labor's share was back to 107.6 - slightly above the former average.
3 - c.  Since then it's been constant decline, except for a quivvering pause in 2005, the index base for this data set.  The Shrub admin gave us the first near-monotonic drop in the history of the data set.  In many ways, Obama's first term might as well have been Shub's third, so the decline continues unabated.

Here is yet another look.

The average for each president's term is indicated with a heavy horizontal color-coded line.  Kennedy-Johnson and Nixon-Ford are each taken a single admins.  Reagan and Bush I are considered separately.    The average of the entire data set is 105.13, just slightly above Poppy's 104.71

The green lines are 2 standard deviations above and below the moving average, and based on the same 8 year moving data packet

 4 - Slide into the abyss.
4-a.  Through Carter, term averages are between 106.5 and 107.85.  They do seem to be stepping down slightly over time,  but who can say if that means anything?
4-b.  With Reagan, the average slumps to 106.0 - a new low that looks oh, so high from here.
4-c.  Poppy gave us 104.7, Clinton 103.3, but look at that peak at the end of Clinton's term- an 18 year high!
4-d.  Which was obliterated completely and immediately by Shrub.
4-e.  Then came B. Hoover Obama.  Alas and alack.

5 - Data behavior.
5-a.  Despite telling a sad story, this is very well behaved data set, almost perfectly contained by the green lines, which seem to be acting as control limits.
5-b.  Every excursion to a limit results in a rebound that eventually reaches either the opposite limit, or the average line.   The limits really are limiting, and both the moving average and the presidential term averages seem to have some reflective power.
5-c.  After bouncing off the upper limit in '82, the slide to the lower limit took 15 years.  The rebound to the upper limit took only 4 years.
5-d.  But, because of the near-monotonic nature of the slide, the standard deviation had declined from 1.6 to 1.0, so the channel was much narrower on the way up.
5-e.  Standard deviation peaked at 2.5 in 2007, has not gone below 1.8 since, and is now at 2.2 and rising.
5-f.  The data and the lower limit have been clinging vines declining together since Q2-09, with no end in sight.
Decades of low taxes and deregulation have allowed wealth to flow away from labor into profits, which have been misallocated into financial tail-chasing, rather than real investment.  There isn't anything here that we didn't already know.  This is just more confirmation of the real nature of the Great Stagnation.


The Arthurian said...

Took your FRED link, backed up a couple levels, looked at various components of nonfinancial corporate numbers.

RED = labor share
BLUE = profits
GREEN = non-labor payments

Just to get you all fired up :)

The Arthurian said...

That graph probably makes unrealistic comparisons, as the vertical scale is just indexes.

Still, stability is stability, and increase is increase.

BadTux said...

Interesting. So it appears that for our lords and masters, there are no such thing as recessions. When demand falls they lay off workers but maintain their profit margins, when demand rises again they hire workers back but increase their profitability even more by using the productivity increases they squeezed out during the recession to justify hiring fewer workers than before.

What a great gig it is, being a lord and master. Beats working for a living. Well, unless you weren't born to the crown and robes and are a working stiff, in which case it sucks to be you. Or me, for that matter.

- Badtux the Working Stiff Penguin

wraft said...

I just stumbled across your site in searching for images related to "labor share". I appreciate your analysis and reasoning but must humbly disagree with your conclusion that loss of wage share is due taxation and deregulation. IMHO the erosion of wage share is due to inflation. I base this opinion on a Goodwin model simulation I wrote modified for inflation.

While inflation supports a high employment level, it erodes the wage share. The dynamic is that business finances investment via higher future prices. Wages remain flat except during period labor shortages. The net effect is that it is as though business borrows from households but doesn't pay the loan back.

I have posted similar stuff at johanraft.wordpress.com where I welcome you and your readers to add comments.

Jazzbumpa said...

wraft -

Greetings and welcome. There's more to my conclusion than what you see in this post.

Here I deal with dividends and taxes.

Here and here with inflation.

I looked at your chart and am utterly baffled by it.

And I couldn't disagree more about inflation. When inflation was high, so was labor's share. As inflation dropped, so did labor's share. I don't think your position reflects reality very well.

But, I welcome disagreement, and appreciate your visit.