Profits without labour benefits: The impact of financial globalization on work by Rolph van der Hoeven

Category: Policy| research

26 Mar 2014

Rolph van der HoevenIn many countries the share of labour in national income has declined over the last three decades. As a result, the low and middle-income groups of people who depend the most on wages for their income are crumbling. Meanwhile, the rich elites who depend more on profits from capital investments than on wages are flourishing. At the same time, income earned from capital investments is taxed less than labour income, resulting in greater inequality.

The decline of labour share will continue as taxation on capital and corporation taxes further decline, and taxes on labour remain the same or even increases, benefitting the global rich.

As in developed countries, in developing and emerging economies there is a decline in the share of wages in national income, despite significant increases in average wages in many developing countries over the last decade.

The result is increasing inequality in societies at the household level between groups who depend on wages for their income, and a small group of rich who earn an income from investments in the capital market.

Investors like investment banks, shareholders and hedge funds demand short-term profits and are therefore not investing these profits in the real economy, on which wage earners depend for their income.

A drastic rethinking of labour market policies is needed. Moreover, employment policies need to be broadened to other policy other areas, such as to financial regulation and taxation. These changes require more international coordination.

For a detailed information, read the analysis here

Rolph van der Hoeven is Professor on Employment and Development Economics at the International  Institute of Social Studies of Erasmus University of Rotterdam. He is also a member of the Committee on Development Cooperation of the International Advisory Council (AIV)  to the Dutch Government. Previously he has worked for over 30 years in various place in the world at UNICEF and ILO, where he was most recently  manager of the secretariat of the World Commission on the Social Dimension of Globalization and Director of ILO’s Policy Coherence Group.

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Economics of Development (ECD) is a Major in the MA in Development Studies. This blog provides a platform for discussion for researchers, students and others interested in this field of studies. The blog is administered by the ECD teaching team.