CHAPTER SEVENTEEN
The Danger of Excessive Labor Income
IT IS RAPIDLY BECOMING CLEAR that both productivity and capital formation depend heavily on the labor-income ratio—the proportion of value added that goes to wages and fringe benefits—and that this is true whether we are talking about a company, an industry, or a national economy. If the ratio goes above a certain threshold, apparently between 80 percent and 85 percent, productivity declines and capital formation falls too low to maintain present jobs, let alone create new ones.
Consider the U.S. auto and steel industries. It is common today to bemoan the decline of American industrial competitiveness ...
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