Worry for economy: Labour’s contribution to income keeps dipping

Income is being transferred from workers to capitalists, finds the latest UNCTAD report

By Jitendra
Published: Friday 27 September 2019
Lowering of wages or deregularisation of labour market boosts private investment. Photo: Getty Images

Labour’s share to national incomes has been declining in both developing and developed countries for around four decades now, highlighted the latest United Nations Conference on Trade and Development (UNCTAD) report.

It reduced to around 54 per cent in 2018 from 61.5 per cent in 1980 in developed countries, added the report. In developing economies, the labour share dipped to 50 per cent in 2018 from 52.5 per cent in 1990. In 2006, this share touched an all-time low of 48 per cent.

In the same period, more than 10 per cent of GDP was transferred from workers to capitalists, according to the Trade and Development Report 2019. Lowering of wages or deregularisation of labour market boosts private investment.

The report also showed that while labour wages did not grow at the same pace as the cost of living, the profit share of corporations increased. Affecting living conditions can decrease productivity and further cause erosion of social security, growing market concentration and spread of outsourcing through global value chains, highlighted the UNCTAD report.

In developing countries, labour market liberalisation weakened the prospects of full-time and regulated employment. This made workers lose bargaining power and borrow money for household expenditure. All this finally slowed down demand and led to a recession-like situation, added the report

Reducing labour share, erosion of public spending, weakening of productive investment and rise in stock of carbon dioxide are factors that stand in the way of countries achieving Sustainable Development Goals (SDGs), according to the UNCTAD findings.

The report highlighted the fact that there are underlying structural challenges that stand in the way of revival of global economy. The global market, instead of pondering over challenges, brought some misplaced structural reform that further targets liberalisation in labour, products and financial markets, found the UNCTAD.

This approach overlooked national economic structural constraints like composition of aggregate demand and production and weak labour market institutions.

Public spending

Despite the world witnessing an economic slowdown since 2000, public spending has been on a declining trend in both developed and developing countries since the 1970s. Public spending is important for social protection system and long-term asset creation.

Government spending did rise during the 2008 recession, but it didn’t include any public investments. The spending, which included stimulus packages and corporate and banking bailouts, increased inequalities, according to the UNCTAD report.

Weak investment growth

Credit has been expanding since 1980s without productive investment. Both financial and non-financial corporation have used to finance speculative activities which only made markets riskier and unstable, found the report.

Lack of incentive as maturity period of return from investment is quite long, lower liquidity and often lower yields are the reasons behind non-productive investment, highlighted the trade report. Globally, both developed and developing economies tried to increase profit share and cut down corporate taxes to promote productive investment but it didn’t work out.

Also, all Organization of Economic Cooperation and Development (OECD) countries, except Chile, have cut their corporate tax. The tax cut in the last two decades varies between -3 per cent in Korea and -22 per cent in Germany, found the UNCTAD. 

“The global financial system is going in the wrong direction, which neither encourages productive investment nor creates an environment of productive investment,” said Jayati Ghosh, who teaches at Jawaharlal Nehru University in New Delhi.

Growing stock of carbon dioxide

The current financial mechanism is also at odds with the growing stock of atmospheric carbon dioxide that increases temperature. The prevailing economic pattern where big corporations have a say over carbon-free technology is making it costlier to adopt a solution.

In the last one decade, production of carbon dioxide from developing economies has accelerated, but per capita production of CO2 is less, the UNCTAD added. Developing countries produce around 80 per cent less CO2 when compared with per capita production, read the report.

The report also established a link between rising inequality and rising temperatures. “The threat of rising temperatures from high levels of atmospheric carbon is in large part due to emissions from the richest 10 per cent of people in the world,” read the report.

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