SHARE OF WAGES IN THE NATIONAL INCOME
Factors Affecting Share of Wages Among the factors affecting the share of wages in the national income we may mention the following; (i) Labour Productivity. Other things being equal, the wages per worker would be higher where the labour productivity is higher and would increase with increases in labour productivity. (ii) Introduction or Labour-Saving Machinery. With the progressive introduction of labour-saving machinery the share of wages in the aggregate national output would decline. It will be high where the work is mainly manual and low where it is highly mechanised,
(iii) Condition of the Labour Market. Labour’s share in the total market is subject to various influences in the labour market. For instance, if labour is ¥ plentiful, their share will be low and it will be high if it is scarce. Similarly, collective bargaining, where there are strong labour unions, will increase labour’s share . (iv) Mobility of Labour. If there are no barriers ‘to the entry of labour into the ranks of self-employed persons as small farmers, artisans, etc., labour will get a large share in the national income. (v) Growth of Monopolies. The monopolists are in a position to exploit labour; hence labour’s share in the national product would be reduced under monopoly. (I·i) Export of Capital.If capital migrates to other countries, where cheap labour and raw materials are available, there is a corresponding reduction in employment, and so in labour’s share, in the exporting country.
(I’ii) Cheaper Imports. The real wages, and hence labour earnings, go up when cheap food and other consumable commodities can be imported from abroad. From a continuous rise in wages, one is likely to get the impression that labour’s share in the national income must have gone up. This, however, is not borne out by facts. The fact is that the share of wages in the national income has remained remarkably stable. This is so even in advanced countries where trade unionism is well established and very strong. In Great Britain. in the whole period 1880 to 1944, it fluctuated between 39 and 41 per cent. 9 According to an estimate by Sir Dennis Robertson, the share of wages in the net national income at factor cost varies from 40.3 per cent in 1938 to 43.6 per cent in 1953.10 As regards the U.S.A, Dr. King’s estimate showed that this share was just under 38 per cent in 1909 and just over 40 per cent in 1925.” Thus, the share of wages in the national income has
been remarkably steady.
There are two forces which seem to be responsible for keeping stable the labour’s share in the national income; (a) The level of raw material prices, and (b) the degree of monopoly. These are the forces which in a capitalist economy determine the share of wages in the nationol income under conditions or imperfect competition.
In an economy. where productive capacity is not Iully used, additional units of output can be obtained hy combining more manual workers and raw rnaterials with the given capital equipment without raising the wage and material costs of these additional units. Constant average wage and raw material costs are typical of the major part of the economy. Other items of costs being negligible. the marginal costs of production approximate to the average cost of labour and raw materials.
The difference between the price and the marginal cost goes to the capitalists in the form of surplus’ profits or in the form of profit. interest, rent, depreciation. etc. The share of gross capitalist income and salaries in the total national income is determined by the average degree of monopoly; it increases or decreases if the degree of monopoly rises or falls.The rest of the national income is accounted for by wages and cost of raw materials. Hence. the share of wages in the national income will depend on the cost of raw materials and degree of monopoly power. Therefore, a rise in the degree of monopoly power or in the cost of raw materials will reduce the share of wages and increase the gain of capital. It should be clearly understood that the above analysis is applicable to an economy characterised by imperfect competition with some degree of monopoly power and not to an economy operating under perfect competition where the degree of monopoly power is zero. The world of imperfect compeution is thc world of reality. Under perfect competition. the relative share of labour in the total output depends on the extent to which labour can be substitute for capital, and viceversa. The greater the substitution (technical or commodity substitution) of labour for capital, when the total output expands, the greater will be labour’s share in the new output, and vice versa. This substitution will depend on elasticity of substitution.
The relative share of labour will be greater or smaller according as the elasticity of substitution is greater VI smaller than one, As Hicks observes, “An the supply of any factor will increase ib laurel \hare, ii.c., its proportion of the National Driving) plasticity of substitution is greater than unity That the labor’s share in the national income has remained stable is <11\(‘ to the Iact that, on the one hand labor’s have been baffled by their inability II’ reduce the degree of monopoly power; on the .,Iilef hand. increase in the degree of monopoly PO” er has been neutralist by a fall in the price of raw materials. During depression, the firms try to recover as much of their fixed expenses as possible and labour’s share falls. Hut there is a greater fall in the prices of raw mater ials which checks the tendcncv of the wages to fall. In this manner, forces opcratiur irorn opposite direction keep the share of wages in Ihe natio» .1in<“l’me more or less constant. This has been of capitalist economy