Share Of National Income Research Articles

Income as a Measure of Productivity: Alternative Comparisons of Agricultural and Non-Agricultural Productivity in Thailand

Low productivity of agriculture as compared with productivity of other sectors of the economy is often alleged to be an undesirable condition in underdeveloped countries, because it signifies a misallocation of resources; if productivity of labour is lower in agriculture than in manufacturing and if the difference is not just due to amounts of co-operating factors, then the national income could be increased and people made more prosperous by transferring labour from farms where its productivity is low to factories where its productivity is higher. This simple idea is at the root of the suggestion that a country could benefit from a tariff on manufactures if that tariff induced labour to move out of agriculture and into manufacturing.2 Discussion of the issue has concentrated on the major premise of the argument, namely, that if productivity is low, then such and such a policy would be beneficial.3 The present article is a critique of the minor premise. It is proposed to examine the usual measure of productivity of agriculture to see whether the statistics really bear the implications attributed to them in the policy discussion. Productivity in each sector is usually measured as the ratio of the share of national income generated by that sector to the size of the labour force employed.4 In this article attention is called to four ways in which the usual statistics claimed to represent productivity may fail to do so.

Issues in Distribution Theory: The Measurement of Labor's Relative Share, 1899-1929

IT is a commonplace that inadequate and incomplete data prevent a precise quantitative statement of the secular trend of functional income shares generated by the United States economy. Nevertheless, approximations are possible, and it is on the basis of an approximation that investigators such as I. B. Kravis,' and D. G. Johnson,2 have concluded that labor's relative share in national income has been increasing since the beginning of the twentieth century.3 With this trend as a premise, the fascinating task of explanation presents itself, replete with opportunities for elegant theorizing. Efforts in this direction have already been made by Kravis and Johnson, as well as by R. Solow,4 and M. Bronfenbrenner,5 among others. This paper seeks to stem the explanatory tide, as it were, by showing that the supposed shift in income distribution well may be an illusory one, resulting primarily from procedures and methodology, rather than from real changes in structure. The methodological framework within which the shift has been demonstrated is subject to attack on two general grounds. First, national income, as defined by Commerce, is an unsuitable base upon which to compute labor's relative share. Inconsistencies among the comDonents of this denominator render changes in the ratio's value over time misleading when applied to the structure of income distribution. Second, the empirical evidence itself has been distorted by the manner in which earlier income estimates have been reconciled with Commerce figures in order to form consistent series. While any set of reconciliations inevitably contains elements of arbitrariness, those which have been employed are arbitrary than is really necessary. The first section of this paper develops these particular criticisms in detail. In the second section, alternative data are presented which, it is believed, provide an improved and more meaningful measurement of the relative labor share, and which indicate a startling lack of change in that share between I899 and I929. This finding is based upon the ratio of employee compensation paid by domestic private business enterprises to the product generated by this sector of the economy. Coupled with S. Weintraub's demonstration of the stability of the employees' share in business gross product (Commerce concept) for I929-I957,6 these results contrast sharply with the JohnsonKravis finding that employee compensation rose from 55.0 per cent of national income for the period I900-09 to 67.I per cent for I949-57.7

Labor's Share and "Wage Parity"

M UCH attention has been devoted in recent decades to the statistical evidence relating to share in the national income of the United States. It is generally agreed that this evidence, though inadequate for the earlier years, clearly establishes that the share of wages and salaries in United States national income has been significantly higher since World War I than in the nineteenth century. Some economists have concluded that the share of wages and salaries continues to be characterized by an upward trend. In some studies this upward trend is viewed as evidence that labor unions have succeeded in obtaining a larger share of the pie for their members. Others have concluded that wages and salaries have tended to constitute a stable proportion of national income in recent decades, after allowing for cyclical fluctuations. The significance of the results obtained in such studies cannot be determined without consideration of the changing structure of the economy. The growth of corporate organizations and the displacement of individual proprietorships and partnerships have entailed the conversion of large numbers of self-employed persons to wage and salary workers; not only has the proportion of employees in the labor force been raised, but also many of those added to this category have been relatively highsalaried corporate officers, managers, research and similar personnel.' This process is a continuing one. In addition, the growth of public institutions at a more rapid pace than the private sector of the economy has had an important influence on the share of employee compensation in national income.Furthermore, a considerable part of the wage and salary payments made by government has gone in the last two decades to persons outside the civilian labor force, i.e., to military personnel. These and other changes in the structure of the economy call into question the contention that labor's share of national income is best measured . . . by the ratio of Employee Compensation to National Income, 3 as well as many of the conclusions that have been reached by studying these ratios. The main purpose of the present study is to take account of some of the more important changes in the structure of the American economy, as they bear upon the share of employee compensation, by comparing this share with the percentage of employees in the labor force.4 To

Have We a Decline in Advertising Appropriations?

Are advertiing appropriations, as related to share of national income, at an all-time high? Most advertising men say “yes” without hesitation. But this is not true, as a distinguished business historian demonstrates in this article. Actually advertising's current share of national income is lower than in any decade from the 1890's through the 1930's. The author points out that this phenomenon is related to the fact that advertising expenditures in constant dollars go farther than thirty years ago. In fact, they result in 2½ times greater per capita exposure to advertising.

Alternative Measures of Labor's Share

One of the most fundamental problems in economics is the distribution of among the factors of production. As national is the sum of the factor incomes, it is natural that most empirical studies have used national as a base. Now that increasing portions of the earned by the factors are either taxed or not distributed, gross factor shares have decreasing relevance as measures of welfare. As the various factors of production do not benefit either in direct proportion to taxes paid, or immediately from undistributed income, there is a real need for an alternative measure of share which will reflect these items. Labor's share of disposable is such a measure. Recently Frane and Klein published their data on the distributive shares of disposable income.1 While these data were originally developed with the objective of providing better bases for the derivation of separate consumption functions, they also have the effect of opening a new area of distribution analysis. This new measure of share is compared with the more traditional labor's share of national income (Chart 1).2 It is apparent from the comparison that the cyclical and secular pattern of change in share is significantly affected by the particular statistical measure employed. Labor's share of national income, L/NI, rises considerably more than share of disposable income, L/DI, during the depression, and considerably less than L/DI during the decade of the forties. Furthermore, L/DI exhibits a rather marked upward trend not in evidence in L/NI. The different behavior of these two series attests to the importance of the various tax and undistributed items. The new measure has the advantage of permitting an analysis of the effects of the various governmental and business policies. For example, it would be possible to examine the impact of a change in the personal or corporate tax structure or a change in business' profit retention policies upon the shares of disposable income. Similarly, the effects of changes in contributions for social insurance, transfer payments, etc., could be studied. Although the basic purpose of this paper is to present, rather than account

Labor Patterns and Trends

TO a large extent, Japan's modern economic development was based upon human exploitation and suppression of worker protest. Occupation policy therefore called for deliberate efforts to strengthen the economic status and political effectiveness of the wage earner. SCAP (Supreme Commander for the Allied Powers) enormously encouraged autonomous trade unionism as the chief means for expanding labor's share of national income and securing a voice for the worker equal to management's in setting terms and conditions of employment. Also, the reforms required raising of minimum labor standards in industrial undertakings and broadened the scope and coverage of social security and other protective labor laws. In certain ways, results have been spectacular. Labor unions, when allowed to exist before the war, embraced little more than 400,000 members at their peak (1936). They were virtually nonexistent at the time of the surrender, but within four years membership mushroomed to almost 7 million. Today, Japan boasts the largest organized labor movement among the nonCommunist nations of Asia and the

Labor's Share and the Degree of Utilization of Capacity

The purpose of this paper is to show the relationship between labor's share and the degree of utilization of capacity for the years 1929-1951. Several definitions of labor's share could be adopted, each of which would be preferable for an analysis of particular problems. Labor's share of either national income, private national income, or private non-agricultural income could be used. The latter two measures have the merit of excluding successively the not too appropriate governmental and agricultural sectors from the analysis. Labor's share of national income originating in government is, by arbitrary definition, 100 per cent. Labor's share of agricultural income cannot be measured by wages and salaries alone, because of the large number of small proprietors who work on their own farms and, hence, receive inseparable portions of both labor and non-labor incomes, in the form of proprietors' earnings. Still, definitions excluding these sectors must be regarded as too restrictive. The increasing importance of government in both depression and war certainly influenced labor's share, as did the secular decline in agriculture. Therefore, labor's share is defined as wages and salaries expressed as a per cent of national income.

Are Farmers Getting Too Much?

JT was something of a shock to many economists to learn from Secretary of Agriculture Brannan's testimony before a Congressional committee (April I95I) that in I950 had earned on average only 69 cents per hour for their labor compared with a national minimum wage of 75 cents an hour and rates of one to two dollars or more in other occupations. The 69-cent average (now revised to 70 cents) seemed contrary to several common notions. It did not square with general belief that farmers are getting too much. It seemed out of line with many undeniable cases of real farm prosperity. Since it was an official figure, friendly critics argued not that it was inaccurate but that it was unduly weighted downward by including many submarginal who produce very little for markets. Others raised additional questions, particularly as to validity of comparing farm returns per hour with returns per hour in other occupations, and as to why people living on farms are willing to take less in dollar income. The problem of comparing farm with nonfarm has been a baffling one for many years; in fact, ever since annual estimates of farm were started more than 25 years ago. Ir I92 0'S, equality for agriculture, parity, and the farmers' share of national income were phrases in common use by farm leaders, agricultural politicians, and agricultural economists. The specialists in farm comparisons in 1920's recognized that were both entrepreneurs and laborers; that farming was both a business and a way of life; and, if comparisons with nonfarm were to be made, it was necessary to assign some value for farmer's labor to get residual return on his capital, or to assign some value for use of his capital and management in order to compute residual return for his labor. This, of course, is still an arithmetical necessity. There are other debated issues, such as how to impute values to production used in farm home and how to deal with differences between other elements in farm and nonfarm living standards. Agricultural statistics have been expanded and improved a great deal over past twentyfive years, and a great deal more is known about farm and national income, about per capita farm and nonfarm income, about size and distribution of farm and nonfarm income, and about reduced labor and increased capital requirements in agricultural production, but for most part basic questions in comparative are still unsolved.

Measuring the Inflationary Significance of a Government Budget

HE IMPACT of governmental fiscal activity on a country's employment, income, and prices is of great economic importance. Not only is a significant share of national income disposed of through the government budget; more important is the tendency in many countries to manipulate the budget with a view toward regulating employment, income, and prices. The intelligent use of the budget for this purposeor even the restriction of the budget to a neutral role-requires accurate knowledge of the budget's effects on the economy. The size of the budget surplus or deficit is customarily accepted as an indicator of these effects. In most cases, however, surpluses and deficits as usually computed do not accurately measure the budget's true deflationary or inflationary effect, and further adjustments are needed before this can be ascertained.' An examination of the questions which arise in this connection is of special interest at the present time when, in forecasting, the prospect of budgetary deficits has again to be given serious