RE: Fw: A question for those with fingers on figures

[Michael Harrington <mharrington@milken-inst.org>]

Charles,
It seems this email got cut off in the middle of your comments and your web
page reference was also missing.
Can you repost it?
Thanks,
Michael Harrington

-----Original Message-----
From: Charles W. Upton [mailto:cupton@kent.edu]
Sent: Friday, October 22, 1999 9:25 AM
To: ownership@cog.kent.edu
Subject: Re: Fw: A question for those with fingers on figures


The data on labor shares and capital shares of output are published each
year in the National Income and Product Accounts of the United States, at
least for the United States.  Similar data are available for most other
countries, and are generally pretty good for OECD countries, which includes
Canada and most other industrialized countries.  Roughly 70-75 percent of
income goes to labor, with the rest going to capital and landowners.

While there have been year to year fluctuations, the remarkable property is
that this series has been relatively stable for some time. 

If you want these series back to 1929, you might try:

http://inforumweb.umd.edu/Contents.html

Earlier data are also available, but it takes some search.  WARNING.  Data
searches take time and prove to be habit forming.  I assume no
responsibility if you spend a lot of time on this. 


As to how you reconcile this constancy with the notion that productivity
has been growing, there are a variety of ways to put it, including using
production functions.  IF you really get interested, my web page at the
bottom gives my notes for business conditions which contains the relevant
material on the Cobb-Douglas Production Function.  But the simple idea is
that new technology also makes workers more productive.  One man can now do
what 20 used to be able to do, and anything that makes one more productive
makes for more output and higher compensation.  

This should not be surprising. 

But it is.

Luddites didnt understand this concept at the beginning of the industrial
revolution, but the key point was that demand keeps pace with supply.


(I omit several footnotes on this particular production, but it is pretty
standard).  The wage rate is given by the Marginal Physical Product of
Labor, or dY/dL, which equals

(1-a)Y(t)/L(t)

Clearly the wage rate has been g
If 
  At 11:45 PM 10/21/99 -0400, you wrote:
>
>-----Original Message-----
>From: Keith Wilde <kwilde@magi.com>
>To: ownership@cog.kent.edu <ownership@cog.kent.edu>
>Date: Wednesday, October 20, 1999 11:11 PM
>Subject: Re: A question for those with fingers on figures
>
>
>>A partial response to David Spitzley:
>>
>>-----Original Message-----
>>From: David Spitzley <dspitzle@gw.wash.k12.mi.us>
>>To: < <ownership@cog.kent.edu>
>>Date: Wednesday, October 20, 1999 3:43 PM
>>Subject: A question for those with fingers on figures
>>
>>
>>>...... my memory of statements made in my labor economics course a few
>>years ago was that labor >receives roughly 75% of aggregate income and
only
>>25% is paid out to owners of capital.
>>
>>
>>This ratio fits with my recollection from several years ago.  I spent part
>>of this afternoon with the manager of my unit, who was once a director in
>>the Economic Council of Canada, looking through National Income data from
>>Statistics Canada.  We didn't find the information aggregated in this way,
>>which we found a bit surprising, but it may mean that it is a the result
of
>>occasional bouts of economic research which are not regularly repeated by
>>official statistical agencies.  He agreed, however, with my memory and
>>David's.  I will keep looking, for it seems that my location in a
>government
>>office puts the finger on me for this one.  (David Ellerman doubtless has
>>convenient access to similar data sources on a more general level.)
>>
>>>So, my main questions are
>>>a) what are the current figures accepted in mainstream economics for the
>>relative proportion of >economic output paid to labor as opposed to
>capital?
>>THIS ONE IS FOR THE PROFESSORS.
>>
>>> and b) assuming they are similar to the 75%/25% figures above, how would
>>one square that with the >apparently disproportionate impact of
>>technological progress on economic growth, which would >presumably result
>in
>>increased payments to capital?
>>
>>

>>NOT NECESSARILY.  Improved technology, embedded in capital, increases the
>>productivity of the human actors ("labor" if you will).  Remember that
>>productivity in micro-economics is a phenomenon primarily of factor
>>proportions.  For a fixed quantity of labor, an increase in capital
reduces
>>the productivity of the marginal unit.  Consider Ashford/Shakekspeare's
>>thought experiment of the man and the donkey.  Give a man a donkey and he
>>suddenly can do much more work than before.  "But is it the man or the
>>donkey that is doing most of the work ?" they ask.  Point granted.  But
>what
>>happens if you give the man a second donkey, then a third and a fourth and
>a
>>fifth?  How many added donkeys does  it take to reduce the collective
>output
>>to nothing but a wild menagery?  The lesson: diminishing marginal product
>of
>>capital--a phenomenon in this case purely of proportions, with static
>>technology.  Then consider their other example, of the automated elevator.
>>As technology progressed, the elevator operator gradually became totally
>>redundant.  Now, they say, capital is doing all the work.  Ergo, capital
>>should receive all of the reward for work done.  Tragic for the operators
>>union, but that is why people must have a capital endowment if we are to
>>avoid mass starvation--say A&S.  But are there truly no elevator
operators?
>>I find that every now and then I have to push a red button in the
elevator,
>>to ring an alarm, call for help and bring a service man to the site.  He
>>takes manual control and saves me from an emergency trip to the lavatory.
>>So, is the elevator a complete automaton, or is some human actor now
vastly
>>more productive in conducting people up and down office towers than the
>>department store operator of former times?  Do you think the service man
>>requires more skill, does more lifting work and "deserves" more pay than
>the
>>operator who used to sit there calling out floors, pushing a lever, and
>>opening doors?  And what about all the operators' jobs that have
>>disappeared?  By the logic of capitalism  they are off punching computers
>>and driving trucks for the mobile, just-in-time warehouses of Wal-Mart,
>>bringing us abundant merchandise at rock-bottom prices (in the global race
>>to the bottom).  At an even more personal level, I'm not getting any
>smarter
>>as I get older, but every time my employer provides a new and improved
>>computer my productivity goes up noticeably.  Can I take credit for the
>>improvement?  Not really, by the Kelsonian logic, but unless I were there
>to
>>turn on the machine and ask it to perform erstwhile herculean tasks, it
>>would just sit there dumbly.  And what about the engineers and programmers
>>who superintend the machine and make it do what I want it to?  Half my age
>>and twice my pay.  Are they productive?  Exactly twice as productive?
That
>>one is tough to measure, but if you believe in market allocation as a
guide
>>to value, no question at all.
>>
>>These are the kinds of considerations which make it plausible for the
>shares
>>of income to capital and "labor" to remain roughly constant (the empirical
>>question remaining open for the moment).  There is another important
>element
>>which seems to get overlooked sometimes.  It is analogous to Kelso's
>>discovery of what I think of as the "magic" of money and finance which
>makes
>>it possible to bring together physical resources and make something happen
>>even though no one has "saved up" the money to purchase all the inputs and
>>pay the initial salaries.  I mean "management", the contribution of Peter
>>Drucker and others like him who focus on the human problems of making an
>>organization effective.  As human action becomes more and more remote from
>>physical labor, as machines do more and more of the "actual" work,
>>organization and administration become more critical to assuring a
complete
>>and abundant output. It may be hard to gauge their precise contribution to
>>physical output, but managers and administrative staff certainly get an
>>important share of the resulting income.
>>
>>I suggest that the main reason we find ourselves together in this activity
>>(speaking of the COG progoram generally) is that the meaning of
>>"productivity" has been lost in the disorienting flood of cheap "goods"
and
>>the disconnection of individuals from any concrete product that they can
>>identify as the fruit of their own effort.  This loss of coherence is one
>of
>>the conditions making it possible for a relative few aggressive
individuals
>>to grab a disproportionate share of the collective wealth for themselves,
>as
>>documented assiduously by Jeff Gates, for example.
>>
>>
>>
>Keith Wilde
>Ottawa, Canada
>kwilde@magi.com
>613 990-8125
>613 747-6847
>
>
>
Charles W. Upton
2324 Exline Circle
Hudson OH 44236

Department of Economics
Kent State University
http://www.personal.kent.edu/~cupton