Crisis and Inequality. Mattias Vermeiren

production factor is the other one’s loss.³ While the Eurozone’s labour share was, for instance, 68 per cent in 2010 – meaning that 68 per cent of Eurozone GDP went to wages and other types of labour income and the rest to profits and other types of capital income – the ratio has not been stable over time: figure 1.5 shows that the labour income share has been falling in the advanced capitalist world since the 1970s. A falling labour share implies that workers have been getting a shrinking piece of the pie and the owners of capital a growing piece.

Figure 1.5 Average labour income share, 1970s and 2000s

      Source: OECD

It is interesting and important to note that the fall in the labour income share has been more pronounced in the continental European countries than in the United States and the United Kingdom. There are two complementary explanations for this observation. On the one hand, the labour income share is a broad measure that integrates the incomes of employees working on very different pay scales and in different economic sectors: it includes the low wages of workers located in traditionally low-pay sectors such as food and retail as well as the exorbitantly high salaries of chief executives and senior managers. So given the fact that management pay rose more sharply in the Anglo-Saxon countries than in the continental European countries (as we will see in chapter 5 on corporate governance), it is not really surprising that the labour share fell less prominently in the former group of countries than in the latter. Yet the sharper rise in wage inequality makes the fall in the labour share in the Anglo-Saxon economies look more modest than it is in reality for the majority of wage earners.⁴ For this reason, it is more appropriate to compare the evolution of median wages with the evolution of average labour productivity – that is, the amount of real output (GDP) produced by an hour of labour. Since the 1980s a growing productivity–wage gap has emerged in the US economy: from 1973 to 2015, net productivity rose by 73.4 per cent, while the hourly pay of the typical median wage earners essentially stagnated – increasing only 11.1 per cent over forty-two years (after adjusting for inflation). So while US workers are more productive than ever, the fruits of their labour have primarily accrued to corporate profits (which were distributed to US corporations’ shareholders and their managers) (figure 1.6).⁵

Figure 1.6 The productivity–pay gap in the US economy, 1948–2014

      Source: Economic Policy Institute analysis using data from the Bureau of Economic Analysis and Bureau of Labor Statistics

      Data are for average hourly compensation of production/nonsupervisory workers in the private sector and net productivity of the total economy. Net productivity is the growth of output of goods and services minus depreciation per hour worked.

On the other hand, the greater fall of the labour income share in the continental European economies reflects a more hidden path of rising income inequality related to the weakening of labour power. During the post-war era labour unions were particularly strong in the Eurozone countries and in the Scandinavian countries, but their bargaining power has declined significantly since the end of the 1970s due to a number of developments that will be discussed in the following chapters. One of these developments is economic globalization, which put more pressure on labour unions to contain their wage demands in order to preserve the competitiveness of internationally oriented manufacturing firms, and gave these firms more ‘exit options’ to shift their production to countries with lower labour costs. Another important development is the rise in unemployment in the wake of the neoliberal shift in macroeconomic policy targets away from ‘full employment’ towards the lowering of inflation and public debt levels. As we will see in chapter 3, the Northern European countries have adopted more restrictive monetary and fiscal policies since the 1980s than the Anglo-Saxon countries, as a way to contain the wage demands of their more powerful labour unions and to strengthen the competitiveness of manufacturing sectors, which play a central role in the export-led growth models of the Northern European countries.

Distribution of wealth

      Wealth inequality refers to the unequal distribution of a country’s net national wealth – that is, all the financial and non-financial assets (mostly land and real estate) owned by the residents of a country minus all the liabilities owed by them. For a typical rich country, it consists of about 50 per cent real estate wealth and 50 per cent financial wealth like savings on banking accounts, stocks and bonds.⁶ Traditionally, wealth inequality is significantly higher than income inequality. There are several reasons for this. By definition, an individual’s wealth is income that has been saved and accumulated during his or her lifetime. Because individuals with high incomes tend to save and invest more than individuals with low incomes (who have insufficient income to save and invest), inequality of income translates almost automatically into inequality of wealth. Moreover, wealthy individuals tend to enjoy larger investment returns because they are in a more financially comfortable position to invest in riskier assets and have higher levels of financial expertise and access to professional investment assistance. Finally, and most importantly, wealth can be inherited across generations. In short, as the OECD notes in a recent report, ‘A key aspect of wealth accumulation is that it operates in a self-reinforcing way; wealth begets wealth.’⁷

Table 1.2 shows the household net wealth shares held by the 10 per cent, 5 per cent and 1 per cent of households at the top of the wealth distribution in each country, along with the shares of those held by the bottom 40 per cent and 60 per cent. Based on top wealth shares, household net wealth is most unequally distributed in the United States, where the top 10 per cent of households owned 79 per cent of total wealth and the top 1 per cent held a staggering 42 per cent in 2015. By comparison, the bottom 60 per cent of the wealth distribution in the United States owned a meagre 2.4 per cent of net national wealth. Looking at the concentration of wealth at the other end of the distribution, the share held by the bottom 60 per cent of households was negative in some countries, meaning that, on average, these households had liabilities exceeding the value of their assets (because, for instance, the value of their house was lower than the value of their mortgages and other real estate debt).

Table 1.2 Distribution of net wealth in the OECD world, 2015 or latest available year

	Bottom 40% share	Bottom 60% share	Top 10% share	Top 5% share	Top 1% share
Australia	4.9	16.5	46.5	33.5	15.0
Austria	1.0	8.0	55.6	43.5	25.5
Belgium