More Evidence That Kelso Was Right as Workers' Share of GDP Continues to Shrink

Back in the 1950s, Louis Kelso, the creator of the modern ESOP, argued that the share of economic growth ordinary workers would capture from their labor would shrink over the next decades, while returns to capital would far outpace economic growth. Economists said Kelso was deluded. It turns out the economists were deluded. According to Labor Department data, the salaries of non-management employees have fallen to an inflation-adjusted 10% below their 1970s levels. In the last five years, the U.S. Bureau of Economic Analysis found that despite strong economic growth, the share of GDP going to wages and benefits dropped 2.5%. Meanwhile, the stock market has continued to rise at an inflation-adjusted 8% or so per year. An article in the New York Times on this subject (Oct. 15, 2006) says economists are still perplexed and insist this trend, so counter to classical economic theory, is bound to go back to the normal pattern of wage and benefit growth tracking GDP growth. Kelso, by contrast, argued only by making workers into co-owners of capital would they ever be able to keep up or move ahead.