Why Workers Are Getting Less of What the Economy Produces | Off The Clock

Platypus Economics with Justin Wolfers

Justin Wolfers and Stacey Vanek-Smith examine the historic decline in labor's share of national income, which has fallen to 53%, shifting economic gains toward capital owners. They explore how

Key takeaways

• Labor's share of national income has dropped to a historic low of 53%, down from the traditional two-thirds, meaning capital owners now capture a significantly larger portion of economic output.
• Justin Wolfers argues that beyond $100 million, wealth primarily buys political power rather than personal luxury, citing Elon Musk's $250 million spending in key states that decided an election by just 115,000 votes.

Main topics

• Labor share of income and wage stagnation
• Wealth concentration and political power

Notable quotes

"After a hundred million dollars, what is money buying you? I think it is buying you something. The only thing you can buy with a hundred and one million dollars that you couldn't buy with 99 million is power."

Conclusion

The episode underscores that technological and macroeconomic shifts like AI and declining labor shares are not

Transcript preview

Speaker 1 (0:00) So the first hundred million dollars, maybe I can keep making my life a little bit better. After a hundred million dollars, what is money buying you? I think it is buying you something. The only thing you can buy with a hundred and one million dollars that you couldn't buy with 99 million is power. Speaker 1 (0:16) The work week may be over, but the economy never takes time off. I'm Justin Wolfers, and this is the first ever live edition of Off the Clock from Platypus Economics. This is a very special show because today I'm coming to you live from Stanford University's Initiative for Financial Decision Making. And we have something of a live audience with us. Hey, g'day out there, folks. Say g'day. Speaker 1 (0:47) Thank you. Speaker 1 (0:51) Those were some astonishing Aussie accents. You just get them everywhere through California. I am joined once again by my friend and literally America's favourite economics journalist, Stacey Vanek-Smith, and we're going to unwind the week's news. Speaker 2 (1:11) Thank you, Justin, for that incredibly generous introduction. Yes, I am a columnist for Bloomberg Businessweek and co-host of the podcast, Everybody's Business. And it is very exciting to be in front of a live audience. Hello, everyone. And it's beautiful Stanford, where it is very dreamy. Speaker 1 (1:27) Everything is actually kind of amazing here. So great to have you, Stacey. Let me just explain a little bit. Well, actually, first of all. There was the big jobs numbers. We're going to talk about that in a separate video. So instead of that, we're going to pick through the week's headlines and tell you what you can be concerned about, what you can safely ignore. And I know you, Stacey, always the optimist. You're going to find those silver linings, aren't you? I Speaker 2 (1:52) do try to find silver linings, yes. Speaker 1 (1:55) And so here's just a little bit of background. We're coming to you from Stanford. Stacey and I were both at a conference on how to teach. personal finance. I've got to tell you, Stacey, I came away from this conference inspired. Speaker 2 (2:09) Yes. I feel like you said activist. I feel like you've used the word activist. I did Speaker 1 (2:14) not say activist. I said radicalized. Now, activists are radical. Let me tell you what I got radicalized by. First of all, my mission, Platypus Economics, our mission, we want to teach the world economics. And sometimes when you're a bloke alone in your studio, sitting in his basement, Little secret, that's what Platypus Economics is. Feels a little lonely, but to be in a room with 200 people who are out there taking that mission absolutely seriously, they're trying to teach the world the parts of economics that overlap with how do you run your economic life, your financial life a little more efficiently, ensure that you're going to be good for a rainy day. Make sure those bastards on Wall Street... Do we swear here? Speaker 2 (2:56) I don't know. Speaker 1 (2:57) This is your Speaker 2 (2:58) company, so do we? Speaker 1 (3:00) Well, it's Stanford, so maybe I should use extra long words. You should Speaker 2 (3:05) use longer words. Speaker 1 (3:06) And I should, you know, what's a sort of a tech forward word I could use right now? Disrupt. I could disrupt. And we folks here are trying to disrupt. You nailed that. 11 out of 10. Speaker 2 (3:19) Thank you. I'm pretty proud of myself right now, I will admit. Speaker 1 (3:23) You just disrupted my disruption of failing to disrupt. I appreciate you so much. So these folks really are trying to disrupt the financial world. Too much of the financial world is about charlatans trying to hawk get-rich-quick programs so they can buy a bigger sports car. Speaker 2 (3:40) Well, and I would argue there's a big appetite for it right now between gambling markets and, I mean, I feel like you... The line between investment and gambling has never quite been this blurry. So Speaker 1 (3:55) blurry. We've got the Speaker 2 (3:56) stock exchange investing in polymarket, and it is an interesting time. So Speaker 1 (4:01) blurry. Speaker 2 (4:02) Managing money. Speaker 1 (4:03) To me, it feels like being in an Australian bushfire. Speaker 2 (4:07) What is an Australian bushfire? Speaker 1 (4:09) Well, okay, it's a fire in the bush. I guess in America you call it a forest fire. Speaker 2 (4:14) Okay, yes. You Speaker 1 (4:15) didn't know what a bushfire was? Speaker 2 (4:16) Well, I just, I don't like to assume. Speaker 1 (4:19) No, good. Okay, so it is, there's so much smoke everywhere. Who knows what's what? So it is thoroughly inspiring. I will say, you're right, Stacey, I was radicalized. So this is not an announcement. It is. an intention. I think Platypus Economics should be doing a lot more in this personal finance space. I don't know. I really came away thinking there are so many great ways in which we can teach the insights of economics to help people live better, richer, fuller, more joyful lives. I Speaker 2 (4:51) think that's an important mission. Speaker 1 (4:53) So, look, Stacey, I'm not going to put the hard word on you now, but, mate, we should talk about this. Speaker 2 (4:57) Yes, let's talk. Speaker 1 (4:59) Okay. I mean, not now. Not Speaker 2 (5:01) now. Okay. I see. An intention to talk. Manifest it. Speaker 1 (5:05) Yes. In fact, President Trump would call that a trade deal, what you and I just did. Sorry. I mean, he would. Okay. First topic today. Speaker 2 (5:16) Yes. Speaker 1 (5:17) Is. Speaker 2 (5:18) Is. Speaker 1 (5:19) Wow. Speaker 2 (5:21) It's labor, isn't it? It is labor. Are Speaker 1 (5:23) you going to Speaker 2 (5:23) talk about labor? Speaker 1 (5:24) Yeah, yeah. Speaker 2 (5:24) It's not just labor straight up. There were some concepts that you were going to bring up that I... Yes. Yes. What is this? Speaker 1 (5:30) So something we've talked about, not you and I, but on Platinum Economics, we've talked about is labor's share of income. Speaker 2 (5:37) Labor is share of income. A Speaker 1 (5:38) lot of words there. Speaker 2 (5:39) Yes. Speaker 1 (5:40) Let's try and unpack it. Speaker 2 (5:41) Okay. Speaker 1 (5:41) Okay. Income. Speaker 2 (5:43) money that you bring in. Speaker 1 (5:45) Okay. Share. Speaker 2 (5:48) How much of the money that is brought in goes to one person? Speaker 1 (5:52) Labor. This Speaker 2 (5:53) is very stressful. It is. A worker. Yeah, Speaker 1 (5:56) so what I just did was cold called you. I do this in Economics 101 all the time. Oh, Speaker 2 (6:00) you're poor students. Speaker 1 (6:01) I know. But what happens when they nail a cold call? I call them in. That's the opposite of calling someone out. It's praising them and letting them be seen. Labor share of income. Think of it this way. Metaphor alert. The economy is we bake a pie. And then that pie has to get cut up. Speaker 2 (6:21) Yeah. Speaker 1 (6:22) One way of thinking about inequality is thinking about all the different people and what their slices are. A different way is thinking simply about how we slice that pie between owners and workers. Owners, we economists call capital. Speaker 1 (6:37) and labor workers. And so why are we talking about labor share of income? Labor share of income, according to the most recent data, just hit a new all-time low. Speaker 2 (6:48) So translate this. This means that of all the money that a company brings in, workers are getting the smallest share they've ever gotten. Speaker 1 (6:57) Yes. All the money, the economy, of all the income. So the amount of stuff we produce, wow, national income and product accounting lesson here, is equal to the amount of income that people earn. Speaker 2 (7:08) Okay. Speaker 1 (7:09) Because if we produce something, I'd sell it to you. So you spent on it. I produced it. I get the income. The total income, the share that's going to workers rather than owners is now at an all-time low. Historically, it was close to about three-fifths, two-thirds. We're getting down towards almost half right now. This has been, this is not an overnight thing. This has been, it was stable for many, many years. Speaker 2 (7:31) So we break this down. So that means half of what? Great, Speaker 1 (7:35) the pie. Speaker 2 (7:37) So half of the pie is going to workers. Right. And Speaker 1 (7:39) so it'll literally- Is Speaker 2 (7:40) the other half going to? Speaker 1 (7:41) Owners. Speaker 2 (7:42) Okay. Speaker 1 (7:43) Now, workers are getting slightly the big half. When it was two thirds, you'd really call that the big half. Now it's 53%. Okay. Not really a big half. I mean, technically the big half, but not that big of a big half. Speaker 2 (7:58) Okay. I'm going to ask a question that is going to make me sound heartless, but- Right. Why is this a big deal? Yeah. Speaker 1 (8:07) Well, unlike you, Stacey, I care about workers. And I understand what you like to do at Bloomberg is care about capital. Speaker 2 (8:15) Capital is important. Speaker 1 (8:16) It is important. And I feel Speaker 2 (8:18) like you could almost make a case that. But anyway, I want to hear why you're concerned about this. I feel like there could be a case that this is a good thing. Speaker 1 (8:25) Yes. Well, at certain country clubs, they would say that. And in fact, they are saying that at certain country clubs right now. Yeah. And that's actually the point. So. Speaker 1 (8:36) Let me go back in history a little bit. It actually turns out through the history of economics when we talked about income distribution, it's only today that we tend to talk about the top 10 % versus the bottom 10%. Or Speaker 2 (8:46) the 1 % became a big election thing. Absolutely. Speaker 1 (8:50) Actually, that's also started with economic research by Emmanuel Sayers. So economists, once again, but actually for the preceding 200 years, economists actually talked a lot about the division between labor and capital. So that's the other way we talk about this. labor share of income or the division between labor and capital here's the why um The labor share, wages, what goes to work is, look, for most families, wages are where they get their income. Speaker 2 (9:14) Right. Speaker 1 (9:15) Certainly true for my family. True for you? Speaker 2 (9:18) Yeah. Speaker 1 (9:18) So you don't have a big secret stock portfolio sitting in the background? Speaker 2 (9:22) Tragically, no. Oh, that's Speaker 1 (9:24) so sad. I Speaker 2 (9:25) know. Speaker 1 (9:27) Whereas capital, capital is very, very concentrated. So the country club statement's really only not really a joke. It's kind of true. Speaker 2 (9:37) Why is that a bad thing? Speaker 1 (9:40) If a small number of people get a large amount of the income and most of the rest of us don't get much? Speaker 2 (9:44) Yeah. Speaker 1 (9:45) I thought my answer was enough of an answer. Speaker 2 (9:47) Well, let me ask about this because I feel like inherently it seems like a bad thing. I did work in public radio for a lot of years. Right. Speaker 1 (9:56) My Speaker 2 (9:56) question's this. I feel like it could also be, I feel like this kind of question comes up a lot in the minimum wage debate. Yes. Because then there is this question of like, well, if the workers are getting a larger share, then there can be fewer workers. And if workers are getting a smaller share, then there can be more workers. And as work gets more diffused and industrialized or AI or whatever, then there is more money in the economy that will eventually create more jobs. That could be a good thing as opposed to if you have just a few really highly paid workers So Speaker 1 (10:32) I Speaker 2 (10:33) am I might be misunderstanding this whole concept. Speaker 1 (10:35) No, you're complicated and I'm simple. So let me be simple Okay, Speaker 2 (10:39) I Speaker 1 (10:40) think people like cake Speaker 2 (10:43) Yes. So Speaker 1 (10:44) I- Speaker 2 (10:44) Indisputable. Speaker 1 (10:45) And they like pie. Speaker 2 (10:47) Yes. And Speaker 1 (10:48) if we bake a big national pie- Speaker 2 (10:50) Yeah. Speaker 1 (10:51) Then most people get their slices out of the labor chunk. Speaker 2 (10:55) Okay. Speaker 1 (10:56) If we make the labor chunk bigger, most people get more pie. Speaker 2 (11:00) Where does the cake come in? Speaker 1 (11:02) The cake is made jointly by workers and owners. Speaker 2 (11:05) Okay. Speaker 1 (11:06) You go to work. You work for Capital. Speaker 2 (11:09) Yes. Bloomberg. Speaker 1 (11:10) They provide you with an office, a computer, a microphone. Did Speaker 2 (11:14) you not provide me with an office? Oh. I have a desk. You Speaker