Labour’s share in income falls

Phil O’Reilly

Uninformed comments injure- Phil OReillyThe latest study by the Productivity Commission is a useful, although partial, insight into the economy.

The study ‘Who benefits from productivity growth?-The labour income share in New Zealand’ measures the share of overall income earned by labour compared with that earned by capital.

It shows that New Zealand’s labour income share, although gradually declining since the 1970s, has always been greater than that earned by capital in that period, and has on average increased since 2002.

The Study indicates that the New Zealand economy is supportive of the working person.

The general decline in the labour income share since the 1970s reflects the growth of capital investment in technology in that period and sends the message that as workers we need to keep innovating, upskilling and building our technical capabilities.

Not comprehensive

But the study did not give a comprehensive picture of incomes, since it did not cover many service industries where most employment growth had occurred, and did not take into account significant income additions such as Working for Families and other income support.

The study was about pieces of a static ‘pie’ without considering the dynamic effects of growing the pie.

The key implication of the study is the importance of productivity.

If productivity grows through innovation and technological skills, then real wages can grow regardless of whether the labour income share is growing or not.

Phil O’Reilly is Chief Executive Officer of BusinessNZ based in Wellington.

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