Bruce Bartlett draws attention to three developments in the US economy over the past 30 years or so:
- The declining share of labour in national income in the US
- The growing 'financialisation' of the US economy
- The concentration of income at the top of the US income distribution.
This story makes a lot of sense, and - as far as I can tell - is not greatly at odds with US data. But whenever I read these sorts of stories, it is my habit to look at Canadian data and ask if US narratives can be applied here. (See here for a recent example.)
Firstly, there is the matter of labour's declining share of income. This is a tricky issue to deal with using Canadian data, because Statistics Canada is in the middle of a major revision in the way it produces national accounts data. The new data start in 1981, but have not yet been pushed back to 1961, which is where the old data start. (My working hypothesis for explaining this state of affairs is that StatsCan wants to drive me crazy.)
Here are the labour shares of GDP:
The US labour share has been declining since 1970 or so, but the Canadian labour share doesn't seem to show the same sort of downward secular trend. The US data suggest that the labour share there was roughly constant during the 15 years following the Second World War and Canadian historical data appears to say the same thing:
I'm given to understand that a declining labour share is a stylised fact in many other countries, but I don't see how this claim can be convincingly applied to Canada.
There's another problem: the US labour share started falling around 1970, but the surge in top-end income concentration didn't start until ten years later. But if you look at labour shares in the business sector, the timing in the US narrative starts to make more sense:
The decline in the US more or less coincides with the surge in top-end income concentration in the early 1980s. But once again, this story doesn't fit Canadian data.
So if the shift from labour to capital is the driving factor behind income concentration, we'd expect to see investment income taking a larger share of incomes of high earners. Is that happening?
There are two sources for the Canadian data: Saez-Veall (2005), which goes back to 1947, and Statistics Canada's Table 204-0001, which uses a different data set and only goes back to 1982. This is inconvenient, because that's roughly when the top-end income surge started. The US data are taken from the data set maintained by Emmanuel Saez.
Here are the wage shares of income for the top one percent:
And for the top 0.1 percent:
If you squint and hold your head at a certain angle, you could perhaps persuade yourself that high earners in the US are getting a larger share of their income in the form of returns on their asset holdings - but it's not a trend that leaps out at you. On the other hand, this story clearly doesn't hold In Canada: the wage share at the top increased as income became more concentrated at the top.
This would seem to lend some support to the financialisation hypothesis: if Canadian financial market regulations made it more difficult to play the sort of games that were going on on Wall Street, then asset holdings couldn't be used to generate a wave of new income. And it may also account for the fact that incomes in the Canadian top one percent are roughly half those in the US:
|Canada (2010)||United States (2011)|
|Lower bound||Average income||Share of total||Lower bound||Average income||Share of total|
I'm still moving pieces of the puzzle around. But I think these stylised facts are part of the solution.