Workers in Britain and the United States are getting a smaller share of national income than they did decades ago. That is not simply a feeling. The long-run data shows it.
In the UK, labour's share of national income peaked at around 71% in the mid-1970s and has fallen to around 59%. The United States has experienced a similar long-term decline. The consequence is an enormous shift in income away from wages and towards profits, rents and the owners of capital.
In this video, I look at what happened, why the decline in labour's share is structural rather than a temporary economic fluctuation, and how changes in trade union power, deregulation, privatisation, globalisation and financialisation contributed to it.
I also argue that this helps explain something much bigger: the political anger now evident on both sides of the Atlantic. Millions of people have good reason to believe that the economy is no longer delivering for them. But that anger can be directed towards people who did not cause the economic changes from which workers have lost.
The decline in labour's share was not inevitable. Economic policy helped create it, and different economic policies could change it.
If we want to understand today's political discontent, we need to understand who has gained from economic growth, who has lost, and why.
This is the audio version:
This is the transcript:
People right across the UK and in the USA feel they're being left behind economically, and their anger about this is not irrational. It is grounded in long-run data. As a matter of fact, workers' share of national income has been falling for decades in both the UK and the USA. This is a documented fact and not a matter of political opinion. The numbers reveal a sustained transfer of wealth away from people who work for a living. This is real political economy, and it has serious political consequences.
The labour share of GDP, or our gross national income, in effect, is a core measure of economic fairness. It shows what proportion of national income goes to wages and salaries.
When labour share rises, workers gain more from economic growth.
When it falls, the gains from economic growth flow instead to profits and the owners of capital.
This ratio therefore tells us who is actually benefiting from the economy we share.
The story it tells over the past 75 years is deeply troubling. This chart on the screen now shows labour share of GDP for both the UK and the USA from 1950 to 2025. The line in red is the UK. The line in blue is the USA, and both countries show a clear, long-run downward trend.
The UK labour share peaked at around 71% of total national income in 1975, and has since then fallen to around 59%. In the year before I went to university, people who were working in the UK had the best deal they ever got.
In the US, the labour share peaked at around 65% in 1970, and again has fallen, in their case to around 57%. One of the marked things that you'll see from the chart is how much we have converged. Globalisation has, in this sense, worked.
And on both lines there is a dotted straight line as well, and that's what is called in statistics a regression line. It shows the underlying statistical trend of the data.
Now I've used a simple line in this case; this is a straight-line regression, but that's good enough for our purposes here. And what it shows is that the decline in the labour share is structural and not part of a short-term cycle. Workers in both economies have lost roughly eight to 12 percentage points of GDP.
And in the UK, where the economy is worth around £3 trillion a year, a 12% fall in labour share is worth roughly £360 billion annually. And that's a lot of money that people in employment aren't getting. That is money which once went to wages, but is now going to profits, rents and asset holders.
In the US, a similar shift represents more than $2 trillion a year lost by workers in the USA.
And these, then, are not marginal fluctuations. They are massive transfers of value on an historic scale. This is the economic foundation of the anger we are now seeing in the politics of both countries.
In the 1950s and 1960s, labour share was relatively stable in both countries. Workers shared in the fruits of post-war economic growth. That was one of the characteristics of this era. Trade union power, full employment and regulated markets sustained all of this. And then from the mid 1970s onwards, as neoliberal thinking began to take over and the crises of that decade hit, that settlement began to break down.
In the UK, the 1976 economic crisis and Thatcher's election in 1979 marked the obvious turning point in this chart. In the US, the Volcker Shock of the early 1980s, deliberately created to sustain an attack on industry, played a similar structural role.
And we should remember that Margaret Thatcher did the same thing in the UK. One of the first things she set out to do when she became Prime Minister was destroy British manufacturing and, in the process, destroy the highly paid jobs that went with it to substitute, instead, lowly paid vulnerable employment.
And the UK's labour share peak of around 71% was not a chance, as a consequence. The Thatcher government of 1979 to 1990 reversed this share deliberately. Trade union power was dismantled through successive waves of legislation. Privatisation, deregulation, and marketisation shifted income towards capital. And by 1990, the UK labour share had already fallen to 62%. That was a staggering change in little over a decade. And the data shows that the UK's decline is even steeper than in the USA. It's around 1.6 percentage points per decade over this period. But the overall trend is very markedly downwards.
The US decline is less steep, but it is equally persistent across the period. Labour share fell gradually from 65% in 1970 through the 1980s and 1990s, and by 2000 the pace of decline was accelerating rapidly. Offshoring, platform economics, and declining union density all played a role. The US regression line shows a fall of around 1.1 percentage points per decade. By 2019, the US labour share had reached its lowest post-war level, and this again was not by chance. This was the result of deliberate policy.
And when labour share falls, the counterpart is a rise in the profit share. Corporate profits, dividends, rents hidden within those profits, and capital gains are the direct beneficiaries of the contrast between the declining labour share and the rising return to capital.
And wage inequality also rose dramatically across this period, and we should remember that. This means that the average worker might have seen their share fall even more than this data reveals because executive pay grew so much faster than that of the normal worker.
And at the same time, shareholder returns were systematically prioritised over wage growth. That was deliberate policy on the part of business, and it was encouraged by government. Financialisation of both economies accelerated this transfer, and the mechanism was very simple. Whatever labour lost, capital won: it was as straightforward as that.
Now, there is a bump in the chart, and it's very obvious, and I've highlighted it, and that was during the COVID period. The data at that time went all over the place, and the reason why is that although the labour share was kept intact by furlough in the UK and to some extent in the USA, there was a problem, and that was that GDP collapsed. So it looks as though the labour share rose dramatically, but in fact, just holding things steady while the world was falling apart was what produced the anomaly that the chart shows.
That pushed the UK labour share temporarily back up to around 63% in 2020.
The US saw a smaller spike driven by government transfers rather than wage growth.
But by 2022, both countries had returned close to their pre-pandemic trajectories. In other words, the trend was moving downwards again. COVID was a statistical disruption to this data and not a structural shift in power.
And there are political consequences to all of this, and they are now visible everywhere. When workers lose ground over decades, they look for explanations and someone to blame, and they are right that something has been taken from them. The data confirms this. But they're often offered the wrong explanations for what has happened, and people blame migrants, bureaucracy and culture for this shift when the real cause is a systematic or even systemic and policy-driven shift in economic power.
It is that shift in power, which is the basis for the rise of right-wing populism, and ironically, this policy has been created by right-wing politics. The anger is entirely legitimate, but the, in which it is being channelled is not. Those who are being blamed did not create this crisis. Those who are pointing the fingers did, and that is the political problem we face as a consequence.
And I stress this fall in the labour share is not the result of impersonal or inevitable market forces. It is the outcome of deliberate policy choices made over four decades. Weaker unions, labour market deregulation, and tax policy all shifted income upwards in both the UK and the USA, and governments consistently chose to prioritise capital returns over wage growth.
A different set of choices would have produced different outcomes. This data makes clear that this is a political question and not an economic inevitability. Restoring labour share then means rebuilding workers' collective bargaining power. Trade union rights, sectoral bargaining, and living wage legislation all matter, whilst taxing capital returns more heavily and wages less heavily would shift economic incentives considerably and could help to restore this balance.
Meanwhile, industrial strategy could direct investment towards labour-intensive activity, and regulating financialisation would reduce the dominance of short-term shareholder returns in the thinking of our large businesses. These are not radical ideas. They just described how the post-war settlement worked when people did better than they do now.
The data then is unambiguous. Workers in the UK and the USA have lost ground for years. That loss is measured in terms of hundreds of billions of pounds and trillions of dollars, and that's an annual figure. It directly explains the anger that now dominates politics in both countries, and the causes are political, which means the solutions are as well.
We do not have to accept these outcomes as permanent or inevitable. Understanding the evidence is the essential first step towards changing it. We could change it. We could put in place the suggestions I have just made. We could restore the power of labour. We could give people back the share of GDP that they once had. And if we did, we would restore the balance in our economy and in our politics, and we would not face the threat from fascism, which is now very real on both sides of the Atlantic.
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Productivity and Wages in the US shows how wages have declined since 1947. This is one reason why the cost of living appears is so high now.
See the graph here:
https://jobmarketmonitor.com/2016/03/22/productivity-and-wages-in-us-the-disconnect/
Ian, interesting article. The vast power of US economic seigniorage will ensure this (neoliberal) system will continue. The US national debt is their asset, not liability as the MSM try to explain every day.
But Trump is doing his bit to destory the dollar as the global currency and the US as the global banker. Work harder Donald.
Is this one of the factors causing the collapse of neoliberalism – a system devouring itself? Workers are consumers. Consumers create wealth by spending on goods and services. The businesses supplying those goods and services will decline and ultimately fail if consumers have less money.
It is consuming itself
Does the data show where the drop in the share of national income has been felt most acutely? Based on my own profession (so not the biggest dataset!) my suspicion is that it is those jobs that might be termed “professional white collar” who have lost most (e.g. accountants or lawyers outside of the City, doctors, teachers) whilst incomes have held up fairly well at the bottom because of the minimum wage and have grown stratospherically at the top.
In turn, I suspect it is not lower incomes but higher costs that have hurt the lowest earners most, driven in particular by housing?
It could, but that is certainly not what I would turn into a video, so I have not done it. Sorry.
Thanks for such a fundamentally insightful article.
Might this change/process which has deprived so many for the benefit of relatively few indicate that the U K is not a avalid democracy?
Might factors in this strategic socio-economic shift include the following?
1) The intimate realtionship between the main stream media and the undemocratically overpowerful financial section of our democracy faced polyarcy structured form of government.
2) The subversion of the Labour Party
3) An unstated cooperatio/connivance between the “different” political parties not to revise the Thatcherite changes quoted?
Very interesting post, and I fully agree with your assessment. It brought me in mind of a Penguin book I read in the late seventies, “British Capitalism, Workers and the Profits Squeeze” written by Andrew Glyn and Bob Sutcliffe, which was published in 1972. It argued that post Second World War capitalism was entering a structural crisis,because corporate profit margins and the overall profit share were collapsing. They suggested that this “profit squeeze” was caused by two main forces of rising wage demands, driven by strong, well organised trade unions; combined with intense international competition that prevented companies from simply raising prices to offset those higher labour costs.
Sadly, as your post shows Thatcherism led capitals fight back.
However, this book, and your post shows … “We do not have to accept these outcomes as permanent or inevitable”. My concern is that to reverse matters will take strong political will, and unfortunately this does not seem to exist in Westminster at the moment.
We have to build that will. That is why I do the work I am engaged in.
How about the Government setting some targets for the share of GDP going to wages and the distribution of those wages?
I have in the past proposed some sort of ‘cost recovery’ for benefits and associated costs for companies that have large numbers of low paid employees coupled possibly with making high earnings not an expense for tax purposes.
It could do as you suggest
Reform UK Ltd.’s answers to the discontent this causes are:
1. As you say, scapegoating (migrants, those on benefits, the disabled, the chronically sick, and state pensioners), and
2. Massive giveaways via huge hikes in the personal tax allowance.
It’s economically incoherent, (just like the neoliberal status quo), but this combination of a blatant bribe and scapegoating is electorally, very effective, when MSM amplify it in tabloids and headlines.
I’m not sure I have an effective omnibus-level argument against the Reform UK Ltd. proposals to massively increase the personal allowance – it HAS declined in value due to freezing or less than inflation increases. It’s akin to Trump’s $5k “vote Republican in the mid-terms” bribe.
The argument that the allowance should rise for those on the basic rate tax is good. For anyone else, it isn’t.
The bit Reform are not saying out loud here (they have said it out loud in the past) is that with the massive hike in the initial tax threshhold comes the abolition of further thresholds. i.e. we all get a bigger allowance, but then everyone pays the same rate of tax. An obvious and even bigger redistribution of wealth upwards (to Reform members and funders), paid for by the slashing of all ‘welfare’ for the people at the bottom.
That is probably true.
Thanks again for yet another foundationally informing article?
Why have the various and significant measures to restrain the incomes and empoyment opportunities for workers, including the imposition of the 2% inflation target, not been applied to corporate profits and assets prices?
I saw a report recently that suggested that chinese made cranes installed in US ports possibly contained spyware, so there was a security concern.
What I concluded from that report is that America can’t even build its own cranes! Who is to blame for that? IMO it is American business leaders who decided to shaft their fellow citizens by outsourcing their jobs to China. China quite rightly, is taking maximum advantage. You could almost say that American business leaders are Making China Great Again.
In terms of a top-down approach, Taxing Capital rather than Labour is the only option.
Strengthening Unions and Collective Bargaining needs to come from the bottom-up. In my experience, the Thatcherite union-busting of the 80’s, followed by the “New Labour” reforms of the 90’s, really castrated the unions; essentially removing their will to live. They’ve since evolved into something akin to think-tanks, offering suggestions but without the clout to bring them into being. A niche pursuit for those involved, and pretty much an irrelevance to everyone else.
If Labour [not the party] is ever to reassert itself and reclaim its worth, it needs to grow up and get active. It needs to actively engage with the populace, argue its case and build support. Strikes and protests are nowadays framed in the public consciousness as backward and unreasonable, something that “civilised people” would disdain, but fact is that every progression we (as a society) have made in workers rights has come from striking and protesting.
Thatcher’s “there is no such thing as society” was a self-fulfilling prophecy. Technology has since given the neoliberal establishment a raft of tools to keep people disengaged, fragmented, and precarious; to prevent them pushing back. It will truly be an uphill battle to overcome that.
Much to agree with.
The reframing is very neoliberal: do not argue, it says; there is no alternative.
I remember show of hands votes at the factory gates and union official elections with single figure percentages voting. It seemed to me that the unions were preparing the country for takeover by the USSR. Not just me though. Along comes Thatcher promising to restore democracy to unions and I never looked further at her polices. Thank the unions for getting her into power and the leaders of Argentina for extending the duration!
It is only since listening to you and doing more reading do I realise what Thatcher did beyond the unions. Her mentor was Keith Joseph? They simply had strong beliefs and determination? They were wrong I now think.
I do not know how it is all unwound but hasn’t Healey proposed tax reforms that follow your proposals? Steps in the right direction. Why hasn’t anyone said they will abolish NIC for employees which is a tax on the poorest. If it can’t be removed take it down to 0.0001%.
You are having an effect. Please keep going.
Chris Rick
I will keep going, but so far I have heard virtually nothing from Healey that I agree with. The Budget will be telling…
But most political parties are now funded by capitalists and/or their lackies. The ReformUK £72bn donations from crypto billionaires is just the most embarrassing and visible instance.<p>
Parties are not membership associations in any meaningful sense. They are vulnerable to take over by factions funded by vested interests (see Paul Holdens book about Labour). Many politicians are on a career trajectory – political connection gets them closer to wealth – and offers a post-politics reward in Tony Blair Institute sense – riches untold.<p>
This suggests that no party will implement the wholesale reversal of marketisation and financialization of our public services. Much of the UK economy is owned by overseas ‘investors’ – many of which are really asset strippers, and/or profit/rent extractors.<p>
The system is indeed consuming itself -and further exploitation may become impossible. Richard has said the whole corrupt system has to be overturned – to reinstate a semblance of democracy – but how this will be done without the ascendant proto- fascists causing mayhem is not clear.
We need a revolution, as I have defined it.
The number one goal of neoliberalism is to make a profit, at the expense of everything else, even the people who contribute to creating that wealth.
It really is the case of killing the chicken that lays the golden egg.
Thanks for making this fundamental long run change so clear.
For another video (!) it would be useful to clarify who have been the beneficiaries, from the small – e.g. comfortably off pensioners like me (via private pensions ‘invested’ mostly in existing assets) or small landlords – through to the massive – private equity businesses, internet platform monopolies, etc. Brett Christophers’ book Rentier Capitalism is good on this.
Ok….noted