Forum Discussion Topic 1 M4

You are at negotiation table with Trade Unions to fix a new minimum wage and several
collective bargaining agreements in different sectors. Trade unions provides data
demonstrating that average wage growth has lagged behind average labour productivity
growth since the early 1980s in your country. Labour share of GDP has declined from
67% in 1982 to 52% in 2019. For this reason, also in order to correct possible negative
macroeconomic imbalances, Trade Unions argue that a strong increase in wages is
much needed. What would you reply? Which counterarguments could you eventually
bring to the table?

Trade Union Arguments for Increase in Wages

 Average wage growth has lagged behind average labour productivity
growth since the early 1980s
 Labour share of GDP has declined from 67% in 1982 to 52% in 2019
Management Counter arguments
 Factor driving the increase in capital share of income relates to a
substitution of capital for labour through company’s investment and
adoption of advanced technology brought about through decreasing
technology prices and better capabilities of machines
 The decline in labour income share is a global trend
 Increasing minimum wages can trigger further substitution of labour
with capital
 The strengthening of workers' bargaining positions tends to raise the
labour share through higher wages, but in the medium term the increase
in wages may lead to the substitution of capital for labour. If capital and
labour are easily substitutable, the increase in labour productivity
afforded by the increase in capital intensity may be larger than the initial
increase in wages so that the labour share declines. (Source: Decoupling
of wages from productivity: what implications for public policies? -OECD
Economic Outlook Vol 2018 Issue 2)
 The measurement of value added generally focus on corporate sector.
The unadjusted labour share is a lower estimate of the true share of
labour income because compensation of employees excludes the
income from self-employment, which is recorded as “mixed income” in
systems of national accounts and may thus implicitly be recorded as
capital income.