Does the Decline in the Labour Share of National Income point to the Affordability of a General Rise in Real Wages?

The argument has been made that businesses across the economy can afford to lift wages because there has been a distinct fall in the labour share of income and a rise in the capital share of income.

This note digs into the changes in income shares and concludes that:

• For over 80 per cent of the economy, including most employees and most Australian industries, the labour share of industry income has not declined
• The decline in the labour share of national income does not support the proposition that businesses in general have a greater share of industry income from which they can pay higher wages.

The note also discusses the large stakes that current and former employees have in the higher capital share of national income.