Looking at German GDP statistics from 2000 to 2008, it is striking that labor income kept growing at a much smaller pace than capital income, year after year. In many years, growth in labor income was negative in real terms, in spite of overall GDP growth.
The trend was surprisingly strong:
- In 2000, total labor income was 2.6 x total capital income.
- By 2007, it was down to a mere 1.8 x total capital income.
In late 2008, this trend has reversed: While Q4 labor income was still up 3.5 % from one year ago, capital income was down 8.1 %.
Of course: While unemployment has so far barely gone up, and wages are increasing at 2-3 %, profits in manufacturing and the financial sector have taken a beating.
Worse is to come: There's little doubt that 2009 profis will be shrinking like never before.
Let's look at some numbers:
- Assume 2009 GDP drops by 3-4 % (in real terms).
- Depreciation, indirect taxes and total labor income should remain roughly unchanged. So the complete drop has to be absorbed by capital income.
- Capital income accounted for roughly 25 % of 2008 GDP.
=> 3-4 % of GDP equals 12-16 % of capital income.
Capital income includes rent and interest income. As these will be much less affected, the hit to overall profits should be in the range of 30-60 %.
The unions and the SPD can be happy: No more need for redistributional politics, the market is already taking care of it...
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