Re: OPE-L:_Wage_share

From: glevy@PRATT.EDU
Date: Fri Sep 03 2004 - 15:51:35 EDT

------------------Original Message ----------
Subject: Re: OPE-L:_Wage_share
From:    "Jurriaan Bendien" <>
Date:    Fri, September 3, 2004 3:46 pm

It's probably true that the profits/wages ratio is around 50/50, according
to some measure... but it all depends on what "measure" that is.

According to BEA table 1.12 (National Income by Type of Income), the U.S.
distribution of GDP income flows was in 2003 (in billions of dollars) as

Official total national income $9,679.6
Compensation of employees $6,289.0
Gross corporate distributed and undistributed profits, after depreciation
write-offs $1,021.1
Depreciation write-offs for fixed assets at economic rates $782.5
Proprietors' income $834.1
Rental income of persons $153.8
Net interest and miscellaneous payments $543.0
Taxes on production and imports $798.1
Current operating profits of government enterprises $9.5
Subsidies to enterprises -$46.7
Inventory valuation adjustment -$14.1
Adjustment for economic depreciation -$160.8

See for yourself in the table conveniently provided by the people at BEA:

Whichever way you might compute gross profits as a fraction of GDP, it is
abundantly clear that the ratio cannot be 50/50, because compensation of
employees is 64.97% of GDP, and even if you add gross depreciation for tax
purposes you stil do not get to 50/50.


(1) unlike what many economists suggest, true national income receipts are
not equal to GDP but larger than GDP. The reason is that GDP excludes
income flows unrelated to production, or not generated by production, such
as transfer incomes such as unemployment and social security benefits,
realised capital gains, and income from other property and asset
transactions not included in gross profits (identifiable statistically
only in tax data). For 2002, the provisional estimate of realised capital
gains for tax purposes by individuals equals $246.8 billion (see ). This compared with $432
billion in 1998, $355 billion in 1997 and $326.4 billion in 2001.

(2) the gross profits reported in GDP conceptually exclude many foreign
profit remittances, and disregard the fact that a substantial portion of
domestic corporate profits is realised in foreign tax havens, using
various techniques to avoid tax.

(3) compensation of employees includes gross (pre-tax) wages, plus various
benefits or contributions in respect of employment. GDP aims to include
the total labour-costs to employers in respect of employees, not the
take-home pay of workers.

(4) there is a significant discrepancy between tax-declared interest
payments and net interest payments included in GDP, and there are further
discrepancies between tax-declared income and income reported in GDP data.
Some of these are due to accounting principles (avoidance of double
counting and so on) and some of which are due to conceptual differences
(GDP refers only to income directly related to production activities).

To strike a credible wages/profits ratio, we should therefore really
relate the real disposable wage income to net profits, or, in the case of
Marxian theory, the real disposable income of wage-earners as against
surplus value (profit+interest+rent+tax+the difference between actual and
"economic" depreciation write-offs+certain kinds of "transfers" or
revaluations which represent a net increase in property income). In that
case, we come closer to 50/50.

Even so, to estimate the "true" value of the Marxian "labor-power", it
could be argued (there are controversies about this), adjustments must
also be made for

(1) indirect taxes paid from labour-income
(2) the net difference between state benefits received and levies paid to
the state (positive or negative),
(3) various types of other household income made directly dependent on

So really the story is, yeah, sure, you could construct some kind of 50/50
ratio. But what it means, or whether it is a valid measure, requires
further specification.


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