These graphs are misleading because their y-axes are not uniform. For example, the UK graph's y-axis is limited to a very small range (6pp); in contrast, the India graph's y-axis covers a 40pp range. As a result, changes in UK are exaggerated whereas those in India are visually minimized.
Look at Germany and the UK. In both countries "labor share" has increased by about 5pp in the last two decades. But that same shift is harder to see in the German graph because the range of its y-axis is 3x greater than the UK.
This is not to say that all countries are uniformly changing. But let's not speculate much based on this visualization.
Why is UK an outlier, making greater use of workers? A significant factor may be that UK is an outlier increasingly using cheap labour when this approach does not apply to other developed countries.
Think about ‘the gig economy’ where workers have reduced rights. Think about people wish to work, but few employers offer ‘on the job’ skills training. As JK says think about the ineffective Trade Unions over recent decades. Fortunately some TUs are negotiating with employers rather than playing at far left national politics: Exhibit A = Sharon Graham of Unite - a complete change from Len McCluskey.
If JK finds further research on this it will illuminate the discussion.
One, as a previous reader noted, the UK is a service economy and specialises in labour intensive services (i.e. not IT or biotech, but healthcare, finance, real estate, etc.) and that shifts the labour share compared to continental europe (in particular Germany).
Two, the UK has deindustrialised just like Europe and other countries, but from a much lower level. The reduction in labour force in manufacturing over the last forty years or so was thus smaller than in other countries.
Three, the UK is one of the least automatized and digitised developed economies. Just look at the number of robots per person in the UK vs. other developed countries. At 111 robots per 10,000 employees the UK doesn't even show up in the top 20 and is well below the european average: https://ifr.org/ifr-press-releases/news/global-robotics-race-korea-singapore-and-germany-in-the-lead My favourite example in this respect is car washes. Everywhere in europe hand car wash has been replaced by machines. In the UK, petrol stations close down their machine washers because the competition from hand car wash using cheap labour is too stiff.
The last point also reflect more than a decade of low investment by UK businesses. If you don't invest in machines and equipment, you will need more people to do the work because you are less efficient.
Thanks JK: helpful amplifications. For the increasing disparity between ‘labour’ income & wealth and that of investors in stocks, John Rekenthaler wrote an article for Morningstar “Why the Rich Have Become Richer” 29/12/2022. Of course that is the USA, but - to a lesser extent - the principle applies to the UK.
- Brazil is mostly a service economy, as we have deindustrialized, particularly in the last decade. In the 70s we would export german cars to Germany, but today not even Argentina wants to buy our cars.
- Brazil you can think of a real economy that is very service-oriented and a parallel economy that just happens to exist in Brazil, but that lives mostly independent. Vale is a Brazilian company, but Vale owns the rail and the port they use to export iron, it's a separate economy. Oil is not even onshore. The way the social contract works is that these productive industries are heavily taxed to support the rest of the unproductive economy, particularly also through a very big public sector.
- Brazil has very high interest rates. Even mainstream economists who say that Brazil deserves high interest rates, think Brazil has unexplainedly high interest rates. Governor Roberto Campos Neto has a good presentation on the subject (slides 31-32), but the answers are: poor credit recovery rates, very high public gross debt, very low savings rate, very high directed credit: https://www.bcb.gov.br/conteudo/home-ptbr/TextosApresentacoes/Senado_10.8.23.pdf
- Indeed, TFP has been flat in Brazil for 40 years
- Obviously, Brazil has been run by the Workers Party for 16 of the past 22 years. One can suppose this will help unions and labor.
The vertical axis scales are very different, which doesn't help. UK has seen a moderate rise whereas Russia much more. The US trend is negative but actual size is the effect is tiny compared to Canada. Would be more helpful to draw them on the same scale (maybe they do in the paper)
The trouble with science is that it so often delivers unsatisfying answers, or worse, no answers at all, just more questions :-D
UK: labor-intensive services. Russia: high cost of capital, old heavy industry.
When you have a fever, "not enough cowbell" isn't always the reason.
I wonder how many people get the cowbell reference 😂
never underestimate your readership
These graphs are misleading because their y-axes are not uniform. For example, the UK graph's y-axis is limited to a very small range (6pp); in contrast, the India graph's y-axis covers a 40pp range. As a result, changes in UK are exaggerated whereas those in India are visually minimized.
Look at Germany and the UK. In both countries "labor share" has increased by about 5pp in the last two decades. But that same shift is harder to see in the German graph because the range of its y-axis is 3x greater than the UK.
This is not to say that all countries are uniformly changing. But let's not speculate much based on this visualization.
These three may be outliers for different reasons.
Why is UK an outlier, making greater use of workers? A significant factor may be that UK is an outlier increasingly using cheap labour when this approach does not apply to other developed countries.
Think about ‘the gig economy’ where workers have reduced rights. Think about people wish to work, but few employers offer ‘on the job’ skills training. As JK says think about the ineffective Trade Unions over recent decades. Fortunately some TUs are negotiating with employers rather than playing at far left national politics: Exhibit A = Sharon Graham of Unite - a complete change from Len McCluskey.
If JK finds further research on this it will illuminate the discussion.
I think there are several factors at play.
One, as a previous reader noted, the UK is a service economy and specialises in labour intensive services (i.e. not IT or biotech, but healthcare, finance, real estate, etc.) and that shifts the labour share compared to continental europe (in particular Germany).
Two, the UK has deindustrialised just like Europe and other countries, but from a much lower level. The reduction in labour force in manufacturing over the last forty years or so was thus smaller than in other countries.
Three, the UK is one of the least automatized and digitised developed economies. Just look at the number of robots per person in the UK vs. other developed countries. At 111 robots per 10,000 employees the UK doesn't even show up in the top 20 and is well below the european average: https://ifr.org/ifr-press-releases/news/global-robotics-race-korea-singapore-and-germany-in-the-lead My favourite example in this respect is car washes. Everywhere in europe hand car wash has been replaced by machines. In the UK, petrol stations close down their machine washers because the competition from hand car wash using cheap labour is too stiff.
The last point also reflect more than a decade of low investment by UK businesses. If you don't invest in machines and equipment, you will need more people to do the work because you are less efficient.
Thanks JK: helpful amplifications. For the increasing disparity between ‘labour’ income & wealth and that of investors in stocks, John Rekenthaler wrote an article for Morningstar “Why the Rich Have Become Richer” 29/12/2022. Of course that is the USA, but - to a lesser extent - the principle applies to the UK.
Yup, same applies to the UK
The greatest concern is that when we finally do have a robot, he becomes our Prime Minister
Germany is way ahead of us then...
Truly good piece. Some random comments.
- Brazil is mostly a service economy, as we have deindustrialized, particularly in the last decade. In the 70s we would export german cars to Germany, but today not even Argentina wants to buy our cars.
- Brazil you can think of a real economy that is very service-oriented and a parallel economy that just happens to exist in Brazil, but that lives mostly independent. Vale is a Brazilian company, but Vale owns the rail and the port they use to export iron, it's a separate economy. Oil is not even onshore. The way the social contract works is that these productive industries are heavily taxed to support the rest of the unproductive economy, particularly also through a very big public sector.
- Brazil has very high interest rates. Even mainstream economists who say that Brazil deserves high interest rates, think Brazil has unexplainedly high interest rates. Governor Roberto Campos Neto has a good presentation on the subject (slides 31-32), but the answers are: poor credit recovery rates, very high public gross debt, very low savings rate, very high directed credit: https://www.bcb.gov.br/conteudo/home-ptbr/TextosApresentacoes/Senado_10.8.23.pdf
- Indeed, TFP has been flat in Brazil for 40 years
- Obviously, Brazil has been run by the Workers Party for 16 of the past 22 years. One can suppose this will help unions and labor.
Really interesting colour on Brazil, thank you.
The vertical axis scales are very different, which doesn't help. UK has seen a moderate rise whereas Russia much more. The US trend is negative but actual size is the effect is tiny compared to Canada. Would be more helpful to draw them on the same scale (maybe they do in the paper)
Oh, while typing that I see someone else made the same comment!