WASHINGTON—Pundits, scholars, and activists say the cause of the reduced share of U.S. national income going to workers over the past two decades is increased market concentration. But a new report released today by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, shows that this analysis is largely flawed and contradicted by macroeconomic data that shows that most of the decline is from an increase in rental income, not profits.
“Although labor’s share of output has declined, most of it is from restricted housing markets rather than growing employer power in either product or labor markets,” says Joe Kennedy, senior fellow at ITIF, who authored the report. “In addition, most of the decline is offset by an increase in rental income—including what renters pay and the imputed rent that homeowners pay for their houses. Purported lax antitrust enforcement policy is not causing the drop in labor share, so changing it is not the solution.”
Clearly understanding the actual cause of labor’s falling share of income does not imply that there is no problem. Even if labor shares were unchanging, this would mask substantial income shifts from low-income to high-income workers. But adding broader social concerns such as employment and the distribution of wealth to antitrust law would politicize antitrust enforcement and make it harder to hold regulators accountable for achieving their goals.
“What would help workers is a pro-growth, pro-innovation set of policies to boost productivity and economic opportunity,” adds Kennedy. “The latter includes a higher minimum wage, universal health care, support for greater unionization, and broader access to education. By deterring investment, overly stringent antitrust policy would do little or nothing to raise the labor share of income, but it could very well reduce investment and productivity growth.”