Income of labourers is decreasing & that of capitalists is increasing.
Generally globalisation and automation is blamed for this.
Can globalisation and automation be blamed?
Globalisaation - Rich countries tend have a lot of capital and poor countries tend have a lot of labor.
When rich & poor countries trade, labor’s income share should go down in the rich countries due to increased supply of labour.
At the same time income of labors should rise in the poor countries due to increased demand.
But the labor share has been falling not just in rich nations, but in developing countries as well.
If globalization is purely to be blamed, this anamoly wouldn’t be happening.
Automation - If automation is the only reason then, developing countries shouldn’t be experiencing the fall in labor share because in technological terms they’re far behind the rich countries.
Investment goods like machines, vehicles, computers haven’t really become cheap enough in poor countries.
What is the real reason?
Poor Counties - When poor countries are isolated from the global economy, they tend to specialize in things that rely on a lot of cheap labor -- farming, labor-intensive manufacturing & low-end services.
Capital owners do well, but can’t get truly rich, because of lack of high-end investments and incure considerable labour costs.
But when trade opens up, the rich countries start offshoring manufacturing jobs to the poor countries.
These jobs offer better opportunities for workers, but much better opportunities for capitalists.
This reduces the labour share of income in relative terms.
Rich Countries - Companies in rich countries can ship labor-intensive manufacturing jobs in electronics assembly, toys and clothing to China and Bangladesh,.
At the same time they buy advanced machine tools and robots to do more high-end manufacturing.
As a result, workers in rich countries were hit harder by both free trade and the advent of cheap automation.
Labor wage decline can thus be linked to a combination of increased automation, globalization & development of large monopolies.
