M4

Forum Discussion Topic 1: 

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?
Answer:
When on the negotiation table both parties have to be update on facts and figures and
the strategies which will be adopted to put forth valid arguments against the other party
We as Employers are conscious about the information that there has been significant
decline of the labor share of GDP over last years, Simply the argument of trade unions
that there has been decline in labor share can not be accepted ,as it is, for
consideration.
As we know labor share is amount of total compensation paid to employed people
divided by GDP/GNI.
It is not necessary that there has been low increases in compensation rather it might
have happened that GDP growth had taken place due to many factors
Though it may look like that labor share has decreased but realistically GDP might have
grown due to various factors and there might not be corresponding growth in labour
productivity.
This information will be vital for putting strong arguments So it is essential to know that
what has really contributed to GDP growth over this period. There are many factors
which contribute to GDP.
During previous years there could be accelerated technological developments which
have largely contributed to GDP growth. We know that new technology extends the
range of existing tasks that can be carried out by machines, thereby displacing workers
and reducing the labor share.
Advent of information and communication technologies (ICT) may have shifted the
balance towards labor displacement and facilitated the emergence of "superstar" firms
with very low labor share.
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Innovations and new product designs as well as more capital outlays to enhance
economies of scale also result in value additions and bring out great increase in sales
volumes aggregating to increased GDP.
During this period there were enhanced Global trade agreements allowing organizations
to export and get better prices.
Further it should also be checked that adjustments of self employment etc have been
made while assessing the labor share or not.
Important is trends in labor productivity over 1982 to 1999 must be ascertained. Decline
in labor share could be possible due to the point that there are chances there is not
much growth in labor productivity which should justify increase in wages.
Regarding unions argument of possible negative macroeconomic imbalances that will
be seen when we decide to consider increase. We will have to take onto consideration
inequalities in income distribution, inequalities with in firms and amongst various sectors
Analysis on the above line will equip us to argue why and how much rise in wages could
be worth considering