Labour share in Switzerland remains constant

The revenues earned by companies are divided between the employees (in the form of wages) and the shareholders (in the form of profits). In economics, the contribution made by wages to the population’s total income is referred to as the labour share. It is a key indicator of how income is distributed within a country.

This is because the distribution of wage income in society is far more even than that of capital income, which is focused on a small group. A reduction in the labour share tends to lead, therefore, to greater levels of inequality in the national economy, and could weaken social cohesion.

Michael Siegenthaler, Tobias Stucki and Michael Graff of KOF Swiss Economic Institute at the ETH Zurich have investigated the development of the labour share in the countries of the Organisation for Economic Co-operation and Development (OECD) in recent decades. Switzerland apparently has an exceptional role: from 1980 to 2012, the labour share here has remained stable, whilst in most other OECD countries it has fallen.

In Switzerland, the share of wages in total income has been constantly between 65 and 70 per cent. In countries such as France, Italy, Japan, the USA and Sweden, in contrast, the labour share has fallen during the past 30 years from between 65 and 70 per cent to between 55 and 60 per cent.

High labour share due to high level of education

Using data from companies, the researchers investigated the factors that explain changes in the labour share. Alongside weaker trade unions, above all the increased use of computers and the Internet have been responsible for the decrease in the labour share of most OECD countries. “Routine tasks are being done more and more by computers, rather than by people,” says Michael Siegenthaler. This reduces the labour share of total income as in particular less well qualified employees are no longer needed.

In comparison with countries like Sweden or the USA, Switzerland slept through this technological revolution from 1980 to the mid 1990s. After this point, Switzerland was able to dampen the effects of the digital revolution on the labour share, in part owing to its high standards of education, with a relatively high number of qualified employees using computers to perform complex tasks.

Switzerland to lose its special position

Another key reason for Switzerland’s special position in respect of the labour share according to the researchers is the change in the industrial landscape. In the last 30 years, the Swiss industrial scene has moved less significantly towards sectors with low labour shares than has been the case in other countries. “Switzerland has specialised in knowledge-intensive sectors of industry and services that have above-average labour shares,” says Siegenthaler. This has counteracted the decrease in the labour share.

The researchers also investigated the possible future development of the labour share in Switzerland. Their assumption is that computerisation of the workplace will further increase and the power of the unions continue to fall. Therefore, Switzerland will probably have to cede its special position to a certain extent, as the labour share is likely to fall here too by 2020.

Publication
M. Siegenthaler, T. Stucki: Dividing the pie: the determinants of labor’s share of income on the firm level. KOF Working Paper No. 352, February 2014.

http://www.kof.ethz.ch/de/publikationen/p/kof-working-papers/352/
http://www.snf.ch/en/researchinFocus/newsroom/Pages/news-140318-mm-labour-share-…