Labor and Capital in Times of the Knowledge Society

Wages in many economies are growing only moderately. In contrast, the profits of some large companies have risen sharply. Is there a struggle between labor and capital? A closer look suggests that such an interpretation would be too simplistic.

In recent decades, wage growth have been subdued in many developed economies. While in many countries in the 1970s employees received more than two thirds of the total income of an economy, this share has now dropped by five to ten percentage points in many countries. Over the same period, the profits of some large and productive companies have increased. Does this mean that we are experiencing a new struggle between labor and capital? Various research results suggest that this conclusion is probably too simplistic. While it is true that the profits of some companies have increased significantly, corporate savings have also risen. The global savings rate of firms has recently been around 13 percent, which is an increase of about five percentage points compared to the 1980s.

The crucial question is: Why do companies need these savings? For me, the most plausible explanation of scientific research is that many of the companies that drive these developments are strongly characterized by long-term and expensive research projects. As a result, the so-called “intangible capital” is becoming increasingly important. For example, intangible capital is built up through research and development, software, organizational capital or trademark rights. These typically long-term, expensive and uncertain investments can be financed less well by borrowing than tangible investments; they offer lenders less collateral that could be sold to others with little effort in the event of a loan default. Companies must therefore increasingly finance their intangible investments from their own funds and retain profits – in other words, save. At the same time, they are careful to generate high profits from the high intangible investments – for example, through patents or by strengthening their brands. A high return is actually achieved on this type of innovative capital. The yields on other forms of capital, such as bonds classified as safe, are significantly lower.

This reflects the characteristics of a new economy that is increasingly knowledge-intensive and characterized by long-term intangible investments. Corporate savings can therefore serve as an indicator of the innovative strength of an economy. But not all companies and employees participate equally in this development. So far, it appears that large, productive firms and well-trained employees are the main beneficiaries of the increasingly knowledge-intensive economy. However, these companies also manage with comparatively few employees. These developments are less noticeable in other sectors of the economy. Intangible forms of capital and well-educated workers seem to benefit, while tangible investments are less profitable and less well-educated workers tend to experience little wage increases. At least in some countries, therefore, the inequality in income and wealth has increased.

Switzerland is an exception to these developments. The share of retained earnings in gross domestic product has declined somewhat – but the level is still high compared to many other countries. Inequality also appears to have increased little, at least based on the data available. However, this should not only be interpreted positively. With the necessary caution, the decline in corporate savings can be interpreted as an indication of a subdued development in the innovative strength of Swiss companies.

It is difficult to predict whether these developments – in particular the trend towards more intangible capital – will continue. Groundbreaking developments – for example in the field of artificial intelligence – could further increase the importance of intangible forms of capital. However, it is also conceivable that research in these areas will become even more expensive and take longer. What is important is that technological change does not, as has too often been the case in recent years, primarily benefit a small number of companies and employees, but leads to good work and better-paid jobs on a broad scale.


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Cesaroni, Tatiana, Riccardo De Bonis, and Luigi Infante (2017). On the determinants of firms’ financial surpluses and deficits. 43. Bank for International Settlements.

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