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The declining wage component in GDP


The graph above shows the share of GDP from the wages and salaries of employees, which has clearly been on a downward trend over several decades. This post isn’t about the reasons behind this decline, which would require analysis of (i) supplements to wages and salaries such as pensions and other benefits and (ii) proprietors’ income, which is earned by independent workers and business owners that compensates for labor and capital. What we are interested in is whether the decline has bottomed out.

Indeed, the share has been increasing for about two years now. Is this evidence enough to declare the trend has reversed? Well, that call is difficult. If you play with the graph by changing dates—for example, by ending the data in the year 2000 or 1987—you’d find a pretty similar situation in which the decline appears to have reversed. Yet, the share has continued to decline.

But is this time different? Visit this blog in a couple of years and we may have the answer.

How this graph was created: Search for “compensation of employees” and the series used in the graph should be among the first options. Note that a share of it in national income is also among the top options, but it has less current data. Once you have the graph for the series, add a series to the first line, not as a separate line. Then create a data transformation by applying the formula a/b.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: GDP, WASCUR


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