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2018 - A Tipping Point in the relationship between Capital and Labour

Jim Riley

3rd January 2018

Accompanied by suitable health warnings, 2018 looks like the year when the longstanding relationship between capital and labour looks set to change.

The use of the words “capital” and “labour” does not mean that the two are antagonistic in the Marxist sense.  Once a country has properly embraced capitalism, there is not a single instance of it ever being abandoned.   And “labour” in particular is a very mixed category indeed, covering both university vice chancellors and the people who clean their offices at night. 

But it is a useful simplification to describe the players in the evolutionary game of how to divide national income between profits and wages or salaries. 

Over the past three decades or so, capital has been winning.  The share of profits in national income across the West has risen and the share of wages has fallen. 

The reaction of a number of major companies to the Trump cut in corporation tax rate from 35 per cent to 21 per cent suggests the game is turning. 

Almost immediately, firms like AT&T and Boeing announced special bonuses for their workforces.  Even the banks got in on the act, with Wells Fargo, for example, raising its hourly minimum wage 11 per cent to $15 from $13.50. Additionally, the bank plans to donate $400 million to community and non-profit organizations in 2018. 

The share of wages in American GDP has already started to stabilise.  Since 2014, there have been no further falls.  Short term trends like this can be misleading, but for four years the wage share has been constant.

More generally, the surge towards greater globalisation which has characterised recent decades seems to have halted.  Strong political blocks have grown in the West which share a dislike of the liberal, open border consensus which has done so much to hold down the real wages of the less skilled.

The election of Trump is the obvious example. We see it in the vote on Brexit.  We see it in the hostility to the free movement of labour shown by governments in Eastern Europe.

On a more parochial level, scrutiny of the “emoluments” – “pay” is too vulgar a word for these panjandrums to use – of chief executives and vice chancellors is intensifying on almost a daily basis.

There is little resentment of monies made by those who are perceived to have earned it by their personal skill and effort.  Entrepreneurs and footballers alike are held in high regard in this respect.

In contrast, there is distinct antagonism towards rent seekers.  Those at the top who get paid not on their merits, but merely on the basis of the position they hold.

The balance of forces is shifting. Smart politicians and business people should pay close attention during the coming year.

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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