LABOUR income continues to decline as a share of global GDP and contributes to the rising inequality in income prevalent across the world. Inequality is generally discussed in terms of disparities in personal income and how that varies across skill and education scale. These income inequality measures often try to ignore the fact that income gaps widen between groups of people defined by their position vis-a-vis means of production and property relation. The decline of personal income is not independent of the relative decline of shares of the wage and salary earners and the skyrocketing of shares of profit earners.

According to a recent ILO report the share of labour income in world GDP started declining from the 1980s and in the recent past the share has fallen by 1.6 percentage points during the past two decades from 2004 to 2024. The percentage point decline is small but as estimated implies a loss of labour income to the tune of 2.4 trillion dollars in constant purchasing power parity terms. This is a huge loss of income for the working class in the past two decades. Further during the past three years, which is 2019 to 2022 the report observes a decline of 0.6 percentage points. The major decline that is 40 per cent happened during the Covid pandemic marking a massive shift of incomes from wage and salary earners to asset owners. In other words, the profit earners and financiers gained during the pandemic and the working people were dispossessed due to the pandemic.

DECLINING SHARE

The decline in labour share occurs as a compound effect of several factors. One could be the decline in employment and rising incidence of people neither in employment nor in education or training (NEET). Since in capitalism, distribution is linked to payment against selling of labour power, unemployment reduces labour’s share in GDP. Labour’s share may fall because of the declining bargaining power of workers, which might be because of increased access to the global reserve army of labour by global capital and that had been the case during the neoliberal regime.

The associational power of workers declines due to fragmentation of the production process and labour force. The existing institutional structures and matrix of rights grossly exclude most of the workers from existing rights and entitlements. Due to relocation of production and consequent subcontracting and offshoring and outsourcing within and beyond national boundaries, workers lose their bargaining power from their strategic position in the production process. The share declines due to widening gaps between growth of productivity and growth of wages. Discrimination based on caste, race and gender also contributes to this declining share of working people, simply because stereotyping certain works based on gender or caste restricts uniformity in supply of labour and creates excess supply in certain segments.

Feminising certain occupation increases women employment in certain segments while restricting in others. This reduces bargaining power of women and forces them to accept lower wages. It is significant to note that globally the ratio of men and women incomes are still very skewed in favour of men. In 2024 for each dollar earned by men as labour income, the corresponding earning of female labour is only 52 cents that is 52 per cent of men’s income. Similar wage discrimination exists based on caste and race. Hence the fight to raise the share of labour incomes in GDP is integrally linked to the fight against wage discrimination.

It is found that a sizeable number of global youth are neither in employment nor engaged in education or training (NEET). In 2024 globally around 20.4 per cent of the youth will have such a status. Within women, youth more than 28 per cent belong to this category that is neither employed nor in education or training. In case of men this percentage is 13.1 per cent. On the other hand, unemployment is on the rise in many parts of the world including a drying up of new recruitment in the US labour market. Many observers see an early signal of an impending crisis once again.

The decline of labours’ income globally is also attributable to a relocation of production from high wage to low wage segment of the world. In the advanced countries, labour is increasingly replaced by capital. Since relative price of capital has declined because of increased global flow of capital, production is increasingly becoming capital intensive and labour replacing. On the other hand, in sectors where the elasticity of substitution of labour by capital is low, production is relocated to sites where labour is cheap. This relocation of production has also caused a decline in labour’s income share.

TECHNOLOGY GAINS

One of the reasons for the further decline in the share of workers in global incomes is related to the use of new technology. Technologies are meant to reduce the use of direct labour. Also, general purpose technologies impact all spheres of production. AI is assumed to be emerging as general-purpose technology that would be replacing a wide range of middle level routine jobs, and such outcomes are already evident in the advanced economies. There are arguments that suggest that activities complementary to new technology would also crop up and if they are labour intensive in nature then the net effect could be addition of employment. It is of course difficult to suggest accurate forecasts when the use of new technology is yet to take shape.

Technologies are always disruptive in nature and alter the calculations based on established production function. This is precisely the reason why impacts of technology require a more holistic understanding of the linkages which is only comprehensible once it is operationalised. But what is important apart from definite forecasts is the question of the distribution of productivity gains achieved using new technology. ILO estimates that the labour productivity measured as GDP per hour worked has increased by 58 per cent in the past two decades, between 2004 and 2024. But during the same period, labour income per hour worked grew by 53 per cent. This figure simply shows that workers’ contribution to the social product has grown faster than the growth of their return. The rising gap between the two explains the declining share of workers in global GDP. What is worrying is the rising gap between labour productivity and wages and that has widened in most countries including India.

Technologies reduce the use of direct labour but the social indirect labour, which goes into knowledge creation, innovation, and technology development increases with the use of new technology. In other words, the contribution of social labour vis-à-vis individual labour increases with the development of new technology and that is manifested by rising labour productivity. Therefore, the technology gains should be distributed in a manner that increases the share of labour incomes. But since technologies in capitalism are owned by private capitalists, gains are appropriated by the few and the social labour and wisdom that creates the growth of labour productivity are denied their due.