There are several worrying trends in the global economy, such as rising inequality within countries and slowing productivity growth. But perhaps the most troubling of them is the fall in labor’s share of national income.
The division of the economy into labor and capital is one place where Karl Marx has left an enduring legacy on the economics profession. Labor income represents wages, salaries, tips and other forms of work-related compensation, while capital income encompasses dividends, capital gains, land rent and other income from investment. Although many rich people do earn labor income — chief executive officer salaries, for example — and poorer people do earn capital income from things like pensions, the division of income is a rough proxy for the balance of power between the classes.