By Jeffry Bartash, MarketWatch
The shrinking power of unions and globalization have often been blamed for eroding the living standards for millions of Americans, but they might not have caused all that much harm after all.
The bigger culprits?
Boom-and-bust cycles in the economy and a shift in investment toward high-tech assets such as software and robots, according to a new study by global research firm McKinsey Global Institute .
If all the income generated by the United States each year is viewed as a pie, the portion going to workers has been shrinking for decades. From a high of 65.4% of GDP shortly after World War II to a low of 56.7% at the end of 2016.
The decline has been especially sharp since the late 1990s — and it comes at great cost to those who labor for a living. The average American worker would earn $3,000 more today if labor’s share of national income remained the same as it was in 1998, the study calculated.
The average American worker would earn $3,000 more today if labor’s share of national income remained the same as it was in 1998, the study calculated.
It’s not just happening in the United States, either.
Supposedly more egalitarian Europe has experienced the same phenomenon. The portion of national income going to workers in Germany and France, for example, fell to a half-century low right before the global financial crisis in 2008. The same trend has taken place in developing countries as well, though at a slower pace.
In the popular press, the blame has mostly fallen on globalization. Companies outsourced manufacturing to low-wage countries such as China so they could keep more of the profits, the argument goes, depriving American workers of jobs or forcing them to accept lower wages to keep companies from leaving.
The McKinsey study found that globalization and the decline of unions played a role, but only a small one. The firm estimates they account for no more than one-tenth of the decline in labor’s share of overall U.S. income.
Most industries in the modern U.S. economy — services such as retail, banking, health care and entertainment — are not heavily exposed to competition from low-wage countries. A person who needs financial advice or medical help is not going to hire a Chinese broker or see a doctor in Brazil.
A few important industries were hard hit, particularly auto manufacturing, McKinsey acknowledged. A lot of production was moved to nonunion plants in the southern U.S. or to Mexico, for instance.