I am going to take you on a journey of a series of fortunate events, and at the end hopefully I have a point! The journey is below the flap …
Recently my brother moved back into the country. He is also an economist, and he will be working at the Productivity Commission – here he is. When I met up with him for coffee he told me “Matt, factor shares are going to be important when discussing income and inequality, keep in mind factor shares”. Of course he is right, Piketty’s new book is supposedly very much in this vein (I do not have it yet).
A few days earlier the Infometrics Chief Economist said to me “Matt, if you start looking at factor shares be very careful, the demarcation between operating surplus and labour income is a massive grey area”.
Of course this is true but I wasn’t really too worried about it – as I am not really investigating factor shares for the most part in my research, I am looking more at household microdata.
However, the Productivity Commission reappeared to discuss “productivity in the service sector”. Something I chatted about here. With regards to the discussion of ICT the following point came to mind in my post:
The discussion on ICT is a tough one, it is certainly not independent of the idea of skill/capital based technological change going on at the moment (robots). In this way, the adoption of ICT and increased productivity does also run into the same concepts about the increased concentration of wealth and falling employment rates (in the short term) that we have heard of overseas – it is possible to make the case that low labour productivity may in fact be a signal of a more equitable distribution, and that separating the two in any way will be a difficult and broader policy knot!
This may seem a bit random to people, and I’m not very clear at communicating it (the best indicator I don’t understand the issue well enough), so I left it at that.
While considering these issues I was doing some bedtime reading – the Oxford Handbook of Economic Inequality. This is a gentle read, and I’m definitely keen to blog some bits from it. However, yesterday I ran into the following statement when reading the chapter on factor shares:
The IMF (2007) find a negative effect on labour’s share from the accumulation of ICT capital.
Interested I raced into work to find the document – and sure enough here it is!! A brief search of the pdf showed me that, sure enough they discuss the impact of ICT on labour’s share, and Blinder’s discussion of ICT providing a “third industrial revolution” right in the report.
I think this illustrated just how massively complicated trying to decipher trade-offs associated with policy can be. New Zealand has very high employment rates, a relatively strong labour share of income, and poor utilisation of ICT – why this happened, how this became the case, and what it means (even in terms of the trade-off we face), is insanely hard.
Now, I am not looking at factor shares or any of this type of national account business in NZ, although they are issues I will need to look into in the future. If there was some significant research in this direction, I would be very excited to see it – and of course share in a discussion of it with the readers of TVHE 😉