ns umass 2012 financialization an d measuring the labor share

FINANCIALIZATION AND

MEASURING THE LABOR SHARE

New School – U Mass Amherst Graduate Student Workshop

11/03/2012

Research Questions

What are the implications of financialization for

the labor share?

Conceptualizing the Financialization – Labor

Share Nexus

What are the measurement issues of the labor

share associated with this task?

Outlining the main areas of concern

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Financialization and Measuring the Labor Share 11/3/2012

Outline

Explaining the Labor Share

Sectoral Composition

Technology and Skills

Labor and Product Market Characteristics

Financialization (?)

Measuring the Labor Share

Sectoral Measuring Issues and Multinationals

Labor Income in National Accounts

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Relevance of the Labor Share

Traditional measure of distribution

Bridging national and household level analysis

Aggregate demand and growth implications

LS – Productivity nexus important for inflation

Associations with employment/unemployment

Relevant for personal income distribution

Useful to verify assumptions about production

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Outline









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To what extent does it determine the labor share?

Variation of labor shares between and within

industries

Conceptually straight forward, empirically not

so much

De Serres et al. (2002) and Glyn (2009)

Gollin (2002), Young (2010) and OECD (2012)

Level of aggregation and measurement key

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Outline









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Explaining the Labor Share II


Labor or capital-augmenting technology

Skilled vs. unskilled Workers

Long- vs. medium-run, Acemoglu (2003)

Shift in the 1980’s

Determining the substitution between

Capital and labor

Skilled and unskilled labor

Evidence in the neoclassical literature

Measurement of technology and skills?

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Outline









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Explaining the Labor Share III

Product Market Characteristics

Bargaining Power of the Firm

Product Market Regulation

Privatization

Globalization

Labor Market Characteristics

Bargaining Power

Labor Market Regulation

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Outline





Financialization




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Explaining the Labor Share IV

Financialization Financial Sector Growth Output and profits

Financializing Non-Financial Sector Shareholder-value orientation

Financialization of Labor Retirement tied to financial market performance

Changing employment characteristics

Pay based on financial performance

Financial Market Exposure of Households Consumer credit, mortgage credit, student loans etc.

Macroeconomic Instability and Public Finance

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Explaining the Labor Share V

Growth of FIRE Bigger weight in sectoral aggregation: LS↓

Higher share of “skilled” workers: LS↓

Financialization of Non-financial Businesses Retained Profits vs. Rentier Income AD

Labor vs. Capital Income Shift to more capital intensive production: LS↓

Reduced bargaining power of labor: LS↓

Increased mobility, reallocation of production: LS↓

Tax avoidance and transfer pricing: LS ↑

Financialization of Labor Employer-based pensions: LS~, non-wage LS~

Changing employment characteristics: LS~

Employee Stock Options and Bonuses: LS~, wage LS ↑

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Outline









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Measuring the Labor Share I

11/3/2012 Financialization and Measuring the Labor Share

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Sectoral Measuring Issues

Government Sector

VA= Wages & Salaries + Fixed Capital Consumption

No Capital Income

Indirect Taxes and Subsidies?

Housing/Real Estate

Owner-occupied housing

Imputed rents are capital income

No imputation for labor income

Mining

Almost no labor income

Capital Income determined by current commodity prices

Measuring the Labor Share II


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Financial Services Measurement of Implicit Services (FISIM)

User-Cost Method

Reference Interest Rate Risk-free or equivalent risk?

Securitization: off-balance sheet items not in NA

Treatment of Hedge Funds International Differences

Not in NA in UK, part of the household sector in USA

Measurement of Constant-Price Output Deflated Balances

Counts

Treatment as Intermediate Input of Final Consumption Mortgage Credits

Measuring the Labor Share III


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Financial Services II Risk-free interest rates 20-40 % overstatement of financial services VA

0.16-0.3 % overstatement of GDP For US: Basu, Inklaar, and Wang 2011 For Euro-Zone: Colangelo and Inklaar 2010

Implications for LS Changing sectoral weights: LS ↑

Turn to consumer finance: larger output effect of finance

Missing financial crises? Absence of securitized items, mortgages as (final

consumption) and certain financial institutions

Caution with international comparisons

Measuring the Labor Share IV


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Multinationals

Global allocation of production profits via

Global Supply Chains and Transfer Pricing: LS↓

$53 billion lost tax revenue in 2002 due to transfer pricing

(Pak and Zdanowicz 2002)

Special Purpose Entities & Offshore Tax Havens: LS↓

25 % of German financial assets abroad in top 7 tax

havens (Hebous, 2011)

U.S. multinational firms had about $639 billion of untaxed

earnings offshore (Financial Times, 03/27/2004)

International Transactions of Intellectual Property: LS↓

Outline









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Measuring the Labor Share V


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Self-Employment Income Debate about Labor Income Imputations

Human Capital Raw Labor Share vs. Human Capital Share

Intangible Capital

Top Income Shares Deducting top incomes: top 1%, supervisory workers

Employee Stock Options

Insurance Contributions

Measuring the Labor Share VI


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Intangible Capital

Intermediate Consumption Investment

Business investment in computerized information

Innovative property

“Economic competencies”

Investment in firm-specific human and structural

resources

Adds another dimension to capital income

Implications for LS

Reduction of current LS by 10%points, and growing

Measuring the Labor Share VII


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Employee Stock Options Almost perfect correlation between

Top 1%’s wage share

CEO compensation

Stock market performance

(and regional inequality)

In 2000 2.5% of total employee compensation

90.5 % went to employees below the top 5 executives

Counted as labor income at time of exercise Should be counted at time and level of granting

Difference should be capital gains (Moylan, 2008)

Implications for the Labor Share Changes based on stock market performance volatility

Hybrid Income

Wrap Up

Numerous untested relations between

financialization and the labor share

Measuring finance and sectoral composition

MNCs, financialized non-financial firms and LS

Intangible Capital and the capital share

Employee Stock Options and LS

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Contact:

Bert Azizoglu

[email protected]

Thank you for your attention! 24


mailto:[email protected]

ns umass 2012 financialization an d measuring the labor share

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