The share of wages in the economy is falling as profits are rising. While measuring wages (labour’s share) is difficult due to the distorting effects of multi-nationals, the CSO provides data for the domestic sector which is where 90 percent of work is done.
The share of wages in gross value-added (or net business income) has fallen significantly: 14 percent for the overall domestic economy and 31 percent for the domestic manufacturing sector since 2000. In short, profits are gobbling up more and more of the net revenue that business is generating.
- In 2000, capital compensation (profits) took a 40 percent share in net business revenue. This rose to over 48 percent by 2019.
- In 2019, the share of profits uin the domestic manufacturing sector rose from 43 percent share to over 60 percent during that same period.
One explanation could be that as economies modernise, more activity takes place in less labour -dense activities such as modern manufacturing or ICT. However, the share of labour-dense activities has not changed over the 19-year period in the combined agriculture, distributive, hospitality and construction sectors.
One could also argue that higher profits are necessary to fund higher investment. But with profits rising, has investment risen, too? It doesn’t appear to be the case. Using the CSO’s measurement of modified investment (excluding multi-national distortions) and excluding public investment we find:
- Private sector investment in 2000 was 23 percent of national income (GNI*); or16 percent if we exclude house construction
- By 2019 investment fell to 16 percent of GNI*; or 14 percent if we exclude house construction
It seems that rising profits have not resulted in higher investment though one has to be careful navigating the maze of modified measurements.
How do we compare with our peer group in the EU, other high-income economies? Here we have to turn to net national income. Our GNI* is not measured across European economies. The best comparator is net national income which removes all capital depreciation.
Ireland is at the bottom of the table. Wages (direct wages and/or employers’ social insurance) would have to rise by over 14 percent to reach our peer group average; and nearly 10 percent to reach the Eurozone average.
There is rarely a single explanation for complex economic interactions. But the following must be a major contributing factor.
Trade union membership has fallen from 36 percent of all employees in 2000 to 25 percent in 2019 – a proportionate decline of 30 percent. While there is some good news in recent years (it rose from a low of 23.4 percent in 2016), there is still a long way to go to return to 2000 levels. And even further to reach the 80 percent benchmark established in the recent EU Directive on Adequate Wages.
This obviously poses a challenge for employees in the workplace – to organise through trade unions to capture a higher share of the net business revenue they generate. It poses a challenge to trade unions to reach out to those workers. John Geary and Maria Belizon estimate that 44 percent of non-union member would vote yes to establish a union so there is an open door.
But this also poses a challenge to civil society groups who campaign on issues of poverty and social exclusion. Can we really expect to build a strong social state in the context of capital taking more and more value-added?
This makes trade unionists and anti-poverty activists natural allies in the struggle for higher wages (and so many other issues). It’s time to pursue a common agenda.
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