A variety of industrial robots

IMF: Tech, Not Trade, Is Biggest Hit to Workers’ Income Share

April 10, 2017
Labor’s share of national income declined in 29 of the world’s 50 biggest economies from 1991 to 2014, and IMF analysis suggests “technology is the largest contributor to that change.”

The advance of technology is the biggest reason workers are earning a shrinking slice of the income pie, according to a new study by the International Monetary Fund.

Labor’s share of national income declined in 29 of the world’s 50 biggest economies between 1991 and 2014, the IMF said in a study released Monday. Analysis suggests “technology is the largest contributor to the change in labor shares in the large majority of countries.”

The second main component of income is capital: When wages grow more slowly than productivity, labor’s share of income falls as the owners of capital reap gains at a quicker pace. That often worsens income inequality because capital tends to be concentrated in the hands of a few, the IMF said in a blog accompanying the research.

The IMF’s finding is significant because economists have been debating what’s to blame for decades of sluggish wage growth. President Donald Trump has blamed trade with countries such as China and Mexico for hurting American workers and hollowing out the nation’s manufacturing sector. The IMF study suggests technology is a bigger driver.

About half the decline in national labor shares can be traced to the impact of technology, according to the study, which is part of the World Economic Outlook. The full outlook, including the fund’s forecasts for global growth, will be released April 18 in Washington.

The study notes the rapid advance of information and communications technology has accelerated the automation of routine tasks, causing firms to substitute capital for workers.

Global economic integration has also played a part in labor’s declining share of income, the IMF said. The impact of changes in policies and institutions appears to be limited, though it’s difficult to say how much of the slump has to do with the decline of labor unions, according to the fund.

The IMF has warned before of the threat from the growing use of robots. A September paper by fund economists drew on both science fiction and economic analysis to show the likely “profound negative implications” for income distribution of increased automation. It even depicted an extreme scenario, or singularity, “in which capital takes over the entire economy to the exclusion of labor.”

By Andrew Mayeda

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Licensed content from Bloomberg, copyright 2016.

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