Question

How has the relationship between labor and capital changed across the twentieth century?

Answer 1

Answer -

Over the past 35 years, the economy has been transformed by technological change. The computing revolution and the rise of the Internet have changed the nature of product competition, reduced communication costs dramatically, and allowed the digitization and codification of processes. These changes have affected the returns to different types of labor, the role of labor itself, and the nature of bargaining between workers and companies.

Accompanying this technological change and augmented by it, globalization has proceeded apace. Capital mobility across borders has continued to increase, both in terms of portfolio investments that cross borders and in terms of the reach of multinational corporations. International trade in goods and services has continued to expand, fueled by decreases in information costs, technological changes, and greater policy openness to trade in many countries. Migration, while more limited by national barriers, has also had an important impact in many places over this time period.

Over this period of technological change and globalization, the role of labor and capital has also changed in important ways throughout the global economy. A generation ago, students of economics were often taught that the labor share and capital share of all income generated in the economy should be expected to be roughly constant over long periods of time, with about 70 percent of national income accruing to labor and 30 percent to capital. Labor and capital are both inputs into the production process, but the income received by workers and capital-owners likely accrues to different economic classes of people, and so this constancy was reassuring to those who worry about workers’ evolving standards of living.

However, several different sources of U.S. government data indicate that this constancy has broken down in recent decades.