University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Doctoral Dissertations Graduate School 12-2017 A Contribution to the Critique of Labor Share Analyses Shannon D. Williams University of Tennessee Follow this and additional works at: https://trace.tennessee.edu/utk_graddiss Recommended Citation Williams, Shannon D., "A Contribution to the Critique of Labor Share Analyses. " PhD diss., University of Tennessee, 2017. https://trace.tennessee.edu/utk_graddiss/4820 This Dissertation is brought to you for free and open access by the Graduate School at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Doctoral Dissertations by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. To the Graduate Council: I am submitting herewith a dissertation written by Shannon D. Williams entitled "A Contribution to the Critique of Labor Share Analyses." I have examined the final electronic copy of this dissertation for form and content and recommend that it be accepted in partial fulfillment of the requirements for the degree of Doctor of Philosophy, with a major in Sociology. Paul K. Gellert, Major Professor We have read this dissertation and recommend its acceptance: Stephanie A. Bohon, Harry F. Dahms, Matthew N. Murray Accepted for the Council: Dixie L. Thompson Vice Provost and Dean of the Graduate School (Original signatures are on file with official studentecor r ds.) A Contribution to the Critique of Labor Share Analyses A Dissertation Presented for the Doctor of Philosophy Degree The University of Tennessee, Knoxville Shannon D. Williams December 2017 Dedication For me and people like me ii Acknowledgements This dissertation was made possible by the support of many people. First and foremost, I would like to thank my children Josie and Elijah for their boldness and daily inspiration. I would also like to acknowledge their mother Jaime Moore who has pulled double parent duty so that I could read, write and finish this analysis. This dissertation would not have been possible without her and her children. I owe much gratitude to my committee, especially Paul Gellert who long ago agreed to chair this committee. His consistent feedback and encouragement, as much as anything else, has pushed me through. I must also acknowledge Stephanie Bohon for her willingness to meet and discuss the intricacies of data analysis when I needed it most. I would like to acknowledge Mathew Murray for the affirmation that he gave me during this often intimidating journey. Dr. Murray never failed to give me the impression that I have what it takes to see an analysis of this magnitude through. Finally, I would like to thank Harry Dahms for his theoretical insight and the passion in which he communicates it. As a graduate student, I consider myself very fortunate to have had the opportunity to grapple with social theory under his guidance. Finally, I would like to thank Andrew Kliman, who was not an official member of my committee but who is as much responsible as anyone for the completion of this dissertation. Thank you Andrew for helping me sift through BEA national income and product accounts, and for making me a better accountant. iii Abstract According to this analysis, the frequently reported narrative about the success of neoliberalism, in terms of redistributing the pie in favor of capital vis-à-vis labor is not supported by data for the first thirty-eight years of neoliberalism. In this dissertation I disaggregate the variation in labor’s share of GDP according to movements in depreciation and the labor shares of various organizational forms namely, corporations, government, nonprofit institutions, proprietorships and private households. Of all of these organizational forms, only the net domestic income of the corporate sector is divisible between profit and compensation. Nevertheless, depreciation, private households, and proprietorships (when the labor income of proprietors is estimated according to the national average of wage and salary workers) have had a significant impact on the trajectory of labor’s share of GDP. The inclusion of proprietors’ estimated labor income (estimated according to the average compensation of wage and salary workers), private households, and depreciation fully explain the decline in labor’ share of GDP during the neoliberal run up to the 2008 Great Recession. When proprietor labor income is not estimated, the decline in labor’s share of GDP is fully attributable to private households and depreciation. Labor’s share of corporations’ net output was trendless over the same period. Finally, this study moves from the aggregate to the sectoral level to investigate the factors that are responsible for the decline in the labor share in manufacturing. While manufacturing has undoubtedly experienced substantial declines in union density in recent decades, the evidence suggests that this decline did not contribute to the decline in labor’s share in the manufacturing sector. Compensation per manufacturing worker rose and by a greater magnitude than compensation per worker in the private sector as a whole. Labor’s falling share in manufacturing, then, was due to a substantial increase in output relative to employment. This dissertation suggests that the fall in the labor share in manufacturing had more to do with technical change that led to sectoral shifts in labor demand. iv Table of Contents Introduction………………………………………………………………………………..1 Chapter 1: Political Economy and the Search for a Law that Governs Distribution ……..8 Chapter 2: Theoretical Implications of a Fall in Labor’s Share …………………………26 Chapter 3: Recent Labor Share Investigations…………………………………………...46 Chapter 4: Labor’s Share as an Analytical Construct…………………………...……….81 Chapter 5: Data and Analysis: Decomposing the Compensation Share of GDP...…115 Chapter 6: Data and Analysis: Estimating the Effect of Proprietor “Labor” Income…..132 Chapter 7: Data and Analysis: Decomposing the Private Industry Share…………..144 Conclusion:……………………………………………………………………………..159 References………………………………………………………………………………167 Vita……………………………………………………………………………………...179 v List of Figures Figure 3.1 US Headline Labor Share Versus Alternative Measure……………………...52 Figure 3.2 US Headline Labor Share Versus Nonfinancial Corporate Sector Labor Share………….………………………………………………………………………….53 . Figure 3.3 US Productivity-Compensation Gap…………………………………………54 Figure 3.4 US Productivity-Compensation Gap…………………………………………55 Figure 3.5 Piketty’s Comparison of Capital Income in Western Countries,1975-2010....64 Figure 3.6 Decomposition of the Profit Share of Net Output……………………………69 Figure 3.7 Profit Share of Net Output…………………………………………………...69 Figure 3.8 Hourly Compensation vs. Productivity……………………………………...73 Figure 3.9 US Labor share Excluding Depreciation and Proprietorships………………..74 Figure 3.9a US Labor Share, Nonfinancial Corporate Business Sector……………..…..77 Figure 4.1 Employee Compensation Share of Net Domestic Product, US Business Sector………………………………………………………………………………….…91 Figure 4.2 Income Shares of US Output………………………………………………....92 Figure 5.1 Decomposition of Total Economy Compensation Share, 1970-2008………119 Figure 5.2 Compensation Shares of National Income, 1970-2008……………………..121 Figure 5.3 Compensation Share of Net Domestic Income without Contribution From Noncorporate Business……………………………………………….…………..124 Figure 5.4 Compensation share of National Income without contribution from Nonprofit Institutions.……………………………………………………………………………..125 Figure 5.5 Compensation Share of Net Domestic Income without the Contribution from Government……………………………………………………………………………..127 Figure 5.6 Compensation Share of Net Domestic Income without the Contribution of Corporate Business……………………………………………………………………..128 vi Figure 5.7 Total Compensation Share of Net Domestic Income without the Contribution of Private Households…………………………………………………………………..129 Figure 6.1 Decomposition of the Total Economy Labor Share………………………...135 Figure 6.2 Labor and Compensation Shares of Net Domestic Income…………………136 Figure 6.3 Total Labor Share of Net Domestic Income without the Contribution of Non- corporate Business……………………………………………………………………...137 Figure 6.4 Total Labor Share of Net Domestic Income without the Contribution of Nonprofit Institutions…………………………………………………………………...138 Figure 6.5 Total Labor Share of Net Domestic Income without the Contribution of Government…………………………………………………………………………….138 Figure 6.6 Total Labor Share of Net Domestic Income without the Contribution from Corporate Business……………………………………………………………………..139 Figure 6.7 Total Labor Share of Net Domestic Income without the Contribution of Private Households ………………………………………………………………….…140 Figure 6.8 Total Labor Share of Net Domestic Income without the Contribution from Proprietorships………………………………………………………………………….140 Figure 6.9 Total Labor Share of Net Domestic Income without the Contribution from Private Households and Proprietorships ……………………………………………….141 Figure 7.1 Kristal’s Labor Shares of Private Industry Output, 1948-2008…………..…147 Figure 7.2 Decomposition of the Labor Share of Private Industries, a la Kristal……...148 Figure 7.3 Labor Share of Private Industry Output, a la Kristal, vs. Labor Share of Private Industries’ Net Output, with Proprietor “Labor” Income Estimated According to the Average Compensation of Wage and Salary Workers………………………...……152 Figure 7.4 Decomposition of the Variance Between the Compensation Share of Manufacturing