Profits Up, Labor Share Down. Computers Why?

The Economist reports that US corporate profit margins are higher than they’ve been in 65 years, and absolute profits have reached unprecedented levels:

And how are the US workers who help generate these profits doing? Worse than ever, as measured by the nonfarm business sector’s labor share —    roughly speaking, the share of GPD going to wages

There are many reasons why labor share is going down as profits and profit margins rise. I believe that technology is one of the major ones. As Moore’s Law continues to spur digital innovation, companies throughout the economy buy computers and computer-controlled machinery to do things that people used to do. This makes capital’s share go up, and labor’s go down.

It also reduces the bargaining power of the remaining workers. If they and their bosses know that it’s getting easier, cheaper, and more feasible to replace humans with machines in more and more job categories, it becomes more difficult and risky to demand higher wages. So again, labor share goes down over time as computer power goes up.

These graphs are not evidence of some vast and orchestrated plot against workers. Instead, they’re just (I believe) evidence of how labor markets operate in an era of astonishingly powerful technology. And I have a lot easier time seeing how profits might fall in the future than seeing how labor share could substantially and sustainably rise.

Do you see things differently? Leave a comment, please, and let us know.