Trades Union Congress Misleads With Statistics On Wages

15 january 2013

There’s a difference between pushing an economic or political case with a careful deployment of statistics and intentionally misleading with the presentation of incorrect statistics. Opinion can and will differ as to which the TUC (The UK’s Trades Union Congress, our central organised labour grouping) is doing in this report here.

At the heart of their argument is this chart*:

The share of national income which goes to labour has fallen over time and apparently this is a very bad idea indeed.

While it’s not said quite outright the implication is certainly that if the labour share has been falling then the profit share must have been rising:

But this wages squeeze was a prime – or should we say sub-prime – cause of the crash. Excess profits and bonuses went into the finance system rather than new investment. Workers deprived of proper pay borrowed to make up the difference. And when bankers stopped considering risk before lending, we had started the inevitable slide to the global crash.

There’re several things that need to be said about this. They are partly right, their conclusion is entirely wrong and as ever, there are some statistical points that have to be made.

The little statistical pieces first. In their report they call this the “wage share of GDP”. It isn’t: it’s the labour share of GDP. The importance here is that the labour share is the wage share plus employer paid taxes on employment. Such employer paid taxes have risen substantially over the decades so the actual wage share of GDP is rather lower than they are making out. You can see this in this chart produced by a friend of mine:

The government’s depredations into the wages of the workers grow ever more extreme.

I will admit that this isn’t something I expect the TUC to tell us, given the way in which the majority of union members are now the public sector workers fed by those rising taxes. But even if they won’t tell us this it is still worth pointing out.

The second statistical mistake is that they are assuming that the labour share plus the profit share make up the national income. This isn’t true either.

There are, by this method of measuring things, four components in GDP. There’s the profit share, labour share, then there’s mixed income and taxes minus subsidies.

Mixed income is largely the self-employed or those running small unincorporated businesses. We’ve long known that it’s difficult to work out how much of this income is labour income, from the work they do, and how much is capital income, from the resources they have invested in the business. Indeed, the better class of “How to Start a Business” book will specifically tell you that you’ve got to try and work this out yourself because so few people do so. Thus we count it separately because we’re not sure if it is labour income or profits/capital income.

This is the chart of all four of those shares over the relevant time period. The TUC is arguing only from 1980 (for the very good and admitted by them reason that the situation in the 1970s was not sustainable. The profit share includes depreciation and when we add the high inflation of the time (which artificially boosts profits) and also the requirement to reinvest to cover that depreciation the country wasn’t making enough profit to even stand still let alone advance.) and as we can see the profit share is now just about exactly where it was in 1980.