Monday, September 06, 2004

You Can't Get Something for Nothing

Via Arnold Kling comes this fact quoted by Ben Muse:

Having reached a peak of 58 percent in 1970, wages and salaries have declined to only 52 percent of national income in 2003. However, if we consider total compensation—including employer social insurance contributions and benefits—labor’s share has shown very little variation. By this measure, labor’s share of national income has averaged 70.5 percent over the past 50 years and has remained within a narrow range of that average
Kling then asks rhetorically:
Is this consistent with my claim that "If employers bear the cost of health insurance, then I'm the Easter Bunny"?
There shouldn't be anything surprising about all this, as no employer will pay more for labor than it is worth to him or her, whatever some government might mandate; all such regulations succeed in doing is depriving those who'd like to spend more of their income on something other than healthcare of any choice in the matter. This information also puts a very different spin on the often quoted "fact" that in the US, labor's share of national income is supposedly in decline thanks to unrestricted corporate "greed."

NB - The post on Growth Theory and "Stylized Facts" at Mahalanobis also makes for interesting reading, not least because it ties into the work of several economists whose work I very much admire. As far as I'm concerned, there is no question in economics more important than how to get poor countries to grow faster and in a more sustained fashion.