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Labor's Share and "Wage Parity"

Joseph D. Phillips
The Review of Economics and Statistics 1960 42(2), 164
M UCH attention has been devoted in recent decades to the statistical evidence relating to share in the national income of the United States. It is generally agreed that this evidence, though inadequate for the earlier years, clearly establishes that the share of wages and salaries in United States national income has been significantly higher since World War I than in the nineteenth century. Some economists have concluded that the share of wages and salaries continues to be characterized by an upward trend. In some studies this upward trend is viewed as evidence that labor unions have succeeded in obtaining a larger share of the pie for their members. Others have concluded that wages and salaries have tended to constitute a stable proportion of national income in recent decades, after allowing for cyclical fluctuations. The significance of the results obtained in such studies cannot be determined without consideration of the changing structure of the economy. The growth of corporate organizations and the displacement of individual proprietorships and partnerships have entailed the conversion of large numbers of self-employed persons to wage and salary workers; not only has the proportion of employees in the labor force been raised, but also many of those added to this category have been relatively highsalaried corporate officers, managers, research and similar personnel.' This process is a continuing one. In addition, the growth of public institutions at a more rapid pace than the private sector of the economy has had an important influence on the share of employee compensation in national income.Furthermore, a considerable part of the wage and salary payments made by government has gone in the last two decades to persons outside the civilian labor force, i.e., to military personnel. These and other changes in the structure of the economy call into question the contention that labor's share of national income is best measured . . . by the ratio of Employee Compensation to National Income, 3 as well as many of the conclusions that have been reached by studying these ratios. The main purpose of the present study is to take account of some of the more important changes in the structure of the American economy, as they bear upon the share of employee compensation, by comparing this share with the percentage of employees in the labor force.4 To

The Illusion of Wage Rigidity: Long and Short Cycles in Wages and Labor

Clarence D. Long
The Review of Economics and Statistics 1960 42(2), 140
T HE main proposition of this paper is that the tremendous long-run upward tide of wages has created an illusion of rigidity by drowning out wage variations that are not only wider than most related phenomena, but are also sensitive to short and long cycles in the general economy. Almost three-fourths of that wage trend has been justified by productivity advances. Slightly over one-fourth of it has been associated with price inflation and is therefore open to the suspicion that the wage trend may have been the prime mover in a wage-price spiral and an integral part of the problem of wage rigidity. Any attempt to convict wages of such responsibility, however, must explain why year-to-year percentage changes in wages rarely led the expansion of business, prices, employment, and productivity and why those in unit labor costs have normally lagged such expansions. Few notions about wages are more widely and firmly held than the belief in their comparative unresponsiveness to economic downturns. The literature abounds with statements like the following: Moderate changes in employment are not associated with very great changes in money wages.' Money-wage levels, like individual wage-rates, are rather insensitive to cyclical forces and decline only in response to major depressions.2 Changes in British and American factory wages during I9 I9-39 lagged behind business activity by substantial numbers of months, and their fluctuations were smaller in amplitude than those of production, employment, and wholesale prices of raw and semi-finished goods.3 The level of wages in prewar Britain was fairly constant in the face of wide employment fluctuations.4 German wage rates have failed to show genuine cycles and have reacted only to major depressions and then with a lag.5 Little decline in Swedish wages could be found in depressions between I887 and I930.6 When there is a considerable increase in unemployment . . . do wages drop as they would in a competitive market? History answers, No.7 There has been no lack of explanation for this apparent wage rigidity in contractions. The most usual has been union resistance, but other explanations have included statutory wage minimums; insistence of the unorganized worker on maintaining his living standards; 8 reluctance of employers to invite popular disapproval, provoke unionization, or risk loss of valuable employees; 9 time required to ascertain that a recession is on; and finally the bureaucratic wage policies of big firms and unions, which can be altered only at substantial cost and difficulty.10 Opinion has been less unanimous concerning wage behavior in expansion. Some believe that wages initiate and aggravate inflation-at least under the recent drive of mass unionism.11 But

Criteria for Aggregation in Input-Output Analysis

Walter D. Fisher
The Review of Economics and Statistics 1958 40(3), 250
FROM the early days of input-output analysis its practitioners have recognized the importance of the aggregation problem and the fact that the results of the analysis depend upon the particular aggregation procedures used to combine industries. Recently, an increasing number of writers have become interested in theoretical as well as practical aspects of the problem.' The potential user of input-output analysis often needs to reduce a given table to smaller size. table say 200 by 200 or even 50 by 50is cumbersome for many purposes. The theorist finds it too detailed to understand, and the forecaster finds it too extensive to use in making further numerical computations. Of course some information is always lost by aggregation. But the considerations that lead to the computations of averages and index numbers also lead to the consolidation of inputoutput tables: ease of comprehension and economy of manipulation. The following question has been posed in the literature: 2 given a detailed input-output table in which many industries appear, and given the desire of the research worker to have only a few large industries to deal with, when is it possible to consolidate the small industries into industries, and still obtain the results of the analysis or predictions as would have been obtained by using the many small industries in the first place? The answer to this question has been shown to be almost never. The special cases where it is possible have indicated the type of conditions needed for what might be called good aggregation procedures meaning procedures which give approximately the same results as given by the detailed model. The need to develop criteria for good aggregation has been recognized, but few specific suggestions have been made.3 The purpose of this paper is to suggest specific criteria and procedures for good aggregation of a given input-output table. First, reasonable criteria are developed, based on the usual objectives of input-output analysis and on some special assumptions concerning final demand. Some approximations to these criteria are then proposed that are closely related to previous suggestions to aggregate on the basis of similarity of coefficients or homogeneity of input structure. The criteria are then illustrated and the usefulness of the approximations tested by numerical experiments involving a * The author gratefully acknowledges the assistance given him by the Social Science Research Council, which awarded him a Faculty Research Fellowship; the Bureau of Research of Kansas State College; Professor William A. Neiswanger, of the Department of Economics of the University of Illinois; Professor Thomas E. Hull, of the Department of Mathematics of the University of British Columbia; Patricia Kollman, graduate research assistant in the Department of Economics and Sociology of Kansas State College. 'J. B. Balderston and T. M. Whitin, in the Input-Output Model in Oskar Morgenstern, ed., Economic Activity (New York, I954), 79-I28; Tibor Barna, and in Input-Output Analysis in Tibor Barna, ed., The Structural Interdependence of the Economy (Proceedings of an International Conference on Input-Output Varenna, I954), ch. 7; John C. H. Fei, A Fundamental Theorem for the Problem of Input-Output Analysis, Econometrica, xxiv (October I956), 400-I2; M. Hatanaka, Note on Consolidation Within a Leontief System, Econometrica, xx (April 1952), 30I-303; Mathilda Holzman, of Classification and Aggregation in Wassily Leontief, ed., Studies in the Structure of the American Economy (New York, I953), ch. 9; John McCarthy, in the Open Leontief Model (paper presented to the Econometric Society at Cleveland, Ohio, December 1956); M. McManus, General Consistent in Leontief Models, Yorkshire Bulletin, vIII (June I956), 28-48; Edmond Malinvaud, Problems in Input-Output Models in Tibor Barna ed., op. cit., ch. 8; Oskar Morgenstern and Thomson M. Whitin, Comments in National Bureau of Economic Research ed., Input-Output Analysis: An Appraisal (Studies in Income and Wealth, Vol. i8, Princeton, I955), I28-35; Herbert A. Simon and Albert Ando, of Variables in Dynamic Systems (paper presented to the Econometric Society at Cleveland, Ohio, December I956); H. Theil, Linear in Input-Output Analysis, Econometrica, xxv (January I957), III-22. 2See works cited of Balderston and Whitin, Hatanaka, Malinvaud, McManus, Theil. 3Some preliminary suggestions have been made by McCarthy and by Simon and Ando in their papers cited.