Labour and capital remuneration in the OECD countries

Functional distribution is an important driver of inequality. When market remuneration of labour and capital are very uneven, as they have been in recent decades, personal distribution tends to polarise, jeopardising social cohesion. This fact explains a renewed interest in functional distribution. Nevertheless, in the estimates on functional distribution the role of self-employed income has been undervalued. National accounts provide estimates of the compensation of employees and the operating surplus, but do not refer to self-employed workers as a specific productive factor and implicitly include their income in the ‘mixed income’ and in some minor items. Most analysts estimate self-employed income by attributing the same average unit compensation of the corresponding employees to each worker, that in fact is not necessarily consistent with the GDP estimates.Other estimates take a fixed share of the ‘mixed income’, usually the same for every country. When national accounts are very detailed, as in the case of Italy, it is possible to estimate self-employment income from non-financial accounts by sectors with some accuracy, under some weak assumptions. In this paper we analyse four workable estimates, since only the total amount of ‘mixed income’ received by households is available for most countries. We analyse the data of the OECD countries focusing mainly on eight large countries: the US, Japan, the UK, Germany, France, the Netherlands, Spain and Italy. The results are somehow unexpected. First of all, evaluating the income of the self employed properly, the overall labour share is declining much faster than reported by the official data in some countries, and more countries showed a decrease in the 2000s. Indeed, the real unit compensation of the self employed reduced significantly in most of the eight countries (and in some of the others) after the mid or the end of the nineties, since self-employment has been used extensively to reduce the overall labour cost. Unit labour cost (ULC) also increased much slower (or even declined more) after 2000 in most countries, shedding new light on the pattern of international competitiveness and the drivers of inflation. The share of operative surplus of non-financial and financial corporations, properly recalculated, has had different dynamics, whereas the component related to imputed rentals of owner occupied houses played an unexpectedly important role. Finally, the mark-up on variable production costs has been higher than expected and its dynamic has been faster in most countries, showing a minor sensitivity to the business cycle. Indeed, statistical data on self-employment income is not fully satisfactory in many countries, thus our estimation of self-employment income represents only a first step towards a deeper comprehension of the dynamic of primary distribution. Indirect evidence of the reliability of our estimates is in their capacity to explain some key variables more accurately, strictly related to labour share, mark-up and ULC, which are income inequality, inflation and export performance.