Economists sound alarm as workers' share of income declines globally

Nothing lasts forever but a global trend that set in 30 years ago shows no sign of ending: a steep rise in the share of income that goes to profits and a corresponding decline in labour's slice of the economic pie.

The imbalance, which is driven by technical change, the waning clout of unions and the rise of financial markets, raises issues that are primarily political.

At what point will public opinion decide that the pendulum has swung too far towards the owners of capital? Should taxes and transfers be tweaked to redistribute income more fairly?

But the trend also feeds into an economic debate over the conventional assumption that modest wages are good for growth because they help productivity gains and hold down inflation.

Jeff Madrick with the New America Foundation in Washington argues that low wages are restraining recovery from the Great Recession and were a root cause of the financial crisis that triggered it. That is because surplus countries such as China and Germany held down wages to promote exports, thereby eroding growth and wages in deficit economies such as the US, where consumers racked up debt to sustain living standards.

The International Labour Organisation's "Global Wage Report 2012/13" says the effects of changes in the labour share on aggregate demand and incomes are ambiguous. But a presumption that wage moderation is always beneficial for economic activity would be misguided.