Heiner Flassbeck… a great economist speaks on wage share

At the 9:40 minute point of this video, Heiner Flassbeck says…

“… But even people who are asking for more expansionary fiscal policies like Larry Summers or Paul Krugman, they are not talking about intervention in the labor market, but this is what is absolutely needed because there is the imbalance. It has nothing to do with the market economy.”

I agree that economists focus too much on fiscal solutions. In my opinion, the real problem is low labor share, which expansionary fiscal policy has no guarantee to solve.

He goes on to say that economists are living in a fiction that the economy is a result of normal market processes. He points to capital’s dominance over labor as the source disrupting a normal market.

Between the 6 and 7 minute points, he says that we need to reinstate the rule that wages rise with productivity. Yet, he says something important just before the interviewer changed the subject (6:45 point). He said that if we reinstate that rule now, the wage share (labor share) will be stuck at its low level. I presume he would have gone on to say that he wants wages to rise a bit faster than productivity in order to raise labor share back up.

It just goes back to the equation of labor share.

labor share = real wages/productivity