There is a post by Dietz Vollrath, Labor's Share, Profits, and the Productivity Slowdown.

D. Vollrath has some math there for how a decline in labor share along with a rise in aggregate mark-ups can show that productivity growth is slowing. Mark-ups are the price over marginal cost. Normally in perfect competition, price is equal to marginal cost, but D. Vollrath questions true competition in the economy. He puts forward that price is above marginal cost.

In the end of his post, he calls for lower mark-ups.

“Measured productivity growth tells us how efficiently we use inputs to produce GDP, so anything that makes measured productivity go up – better technology () or lower markups – is good for us in terms of producing GDP.”

Higher mark-ups and profit rates can rely on lower labor share.

So the solution is to break up market power of companies. Well… Labor also needs more power. We may as well raise labor share too.

My work in effective demand seeks to show that productivity is limited by labor share… such that if labor share falls, productivity becomes even more limited. Also near the end of a business cycle, there is incentive to lower unemployment to maintain profits (mark-ups) while holding capital utilization steady.

In June, 2014, I had a post about labor share,  productivity and profit rates. Profit rates tie to mark-ups. I gave some equations and some analysis…

Profit rate = (1 – labor share)*productivity * labor hours/Capital

Profit rate = (1 – unit labor costs/inflation)*productivity * labor hours/Capital

“Considering 4 things…

1. Profit rates have peaked
2. Labor share has bottomed out
3. Productivity has stalled
4. Capacity utilization is low

… increases in capital will not be made profitable by lower labor share as they have in the past. So, the key to profit rates now is to raise labor hours holding all else fairly constant. Thus firms have an incentive to hire in an atmosphere of controlled unit labor costs, stable inflation and constrained productivity. Unemployment is coming down but unit labor costs are being strictly controlled and productive capital investment is moderate.”