Econolinks: EU trade, Spanish wages, Icelandic debt

Catching up after being off around Europe. Here’s a links post.

You may recall that the EU fiscal pact included at least some warm words about the idea of limiting excessive trade surpluses (as well as deficits) within the eurozone. This is progress, but of course the devil is in the detail. The European Commission’s demonologists were called in to work out the detail. Jean Quatremer reports:

Ainsi, la balance des comptes courants est censée être comprise entre – 4% et + 6% du PIB au cours des trois dernières années. Et, miracle, celle de l’Allemagne est de + 5,9 % !

I.e. the reference range is defined as a three-year moving average of the current account balance between -4% and +6% of GDP. Why is it not symmetrical around zero? Not that there’s a specific argument that it should be, but it’s telling…because Germany’s CA surplus is exactly +5.9% of GDP. Trebles all round.

For the first time on record, the share of Spanish GDP accounted for by profits exceeded that accounted for by wages.

Iceland’s cramdown of mortgages exceeding 110% LTV is considered beneficial, at least by Bloomberg and by Lars Christensen of Danske Bank.

17 thoughts on “Econolinks: EU trade, Spanish wages, Icelandic debt

  1. “For the first time on record, the share of Spanish GDP accounted for by profits exceeded that accounted for by wages. ”

    Err, no.

    Because GDP is not a split between the labour share of income and profits.

    It’s a split between the labour share of income, employer paid taxes on employment, consumption taxes, self-employed income (so called “mixed income”) and profits. Plus some other little bits.

    That the labour share has fallen below 50% is indeed true. But that does not mean that profits are over 50%.

  2. Tim, on what planet does 46.2 not exceed 46? I know you’re not a member of the reality-based community, but I thought the rightwing operationalisation of post-modern thinking had stopped short of opting out of arithmetic as yet more of the liberal metropolitan elite’s so-called expert consensus.

    It goes without saying that you didn’t click through to the link, as the relevant numbers are in the strap line – you wouldn’t even need to read down the story…(and yes, the self-employed are counted).

  3. From the linked article:
    “la renta de los asalariados solo se llevó el 46% de la tarta del valor añadido en el cuarto trimestre de 2011. Y en un cambio también histórico: la porción de las rentas empresariales en el PIB fue por primera vez mayor, un 46,2%.”
    I can’t speak spanish, but guesstranslating in Italian that I speak and is quite similar, it seems to me that the point is that wages (“asalariados”) got 46% of the pie for fourth quarter 2011, while business profits (“rentas empresariales”) got 46.2%.
    Apparently (from the article) “rentas empresariales” includes self employed people, and one of the reason of this “surpass” is that because of high unamployment many workers were pushed in self employment, thus are counted as “profits” and not as “wages”.
    Also from the article: spanish wages grew 1.1% in 2011 while profits grew 6.6%.

    OT: I’m very interested in stats about the share of GDP that goes into wages and the share that goes into profits, but I couldn’t easily locate it on the net. Does anybody know where can I find this information?

  4. Google translate:

    “The detailed accounting of GDP in the fourth quarter, released yesterday, bears witness to the culmination of a career of more than thirty years in Spain and the rest of Europe. At the start of the eighties, the joint remuneration of all employees represented 53% of Spanish GDP, while gross operating surplus (which includes business income and self-employed) remained at 41%. Taxes on production were the fate of the remaining 6%.

    The needs of a welfare state in construction led to raising the tax burden to exceed 10% of value added in the middle of the last decade. In parallel, accelerated the decline in wage income, leading to a record low in the final last year: the income of employees was only 46% of the pie of value added in the fourth quarter of 2011. And also historical change: the share of business income in GDP was first increased, by 46.2%.

    The compensation of employees (1.1% last year) grows much less than business income (6.6%)”

    Note, they do not say that business income is now 46.2% of GDP. They state that business income as a percentage of GDP *increased* by 46.2%.

    Note also that in ther first para they make the same distinctions that I do. The division is not into labour share and profits share. It is into labour share, profits plus mixed income, taxes on production.

    Their statement is in fact that the wages share of income is 46%. 54% of GDP is therefore taxes on production, business income and mixed income (ie, slef-employment income and we call it mixed because we’re never quite sure what part of it is returns to labour and returns to capital).

    Your statement is that profits are now a higher percentage of GDP than wage income. Which just isn’t true. It’s profits plus self employed income plus taxes on production which are.

  5. I think that “la porción de las rentas empresariales en el PIB fue por primera vez mayor, un 46,2%.”” means “the share of business profits of GDP has been for the first time bigger, a 46,2%”.
    I’m quite confident of this translation and I think that google translator mistranslates mayor (“bigger”) as “increase”.
    Thus 46.2% is 46.2% of GDP.

  6. Spanish GDP stats for 2011 (inc. last quarter) are here:

    http://www.ine.es/jaxi/menu.do?type=pcaxis&path=%2Ft35%2Fp009&file=inebase&L=1

    In which we find the following:

    Compensation of employees, 501 billion and change.

    Operation surplus,gross/mixed income, gross, 480 billion and change.

    Nett Taxes on production and imports, 91 billion and change.

    (Table 7 b for those keeping score at home).

    For the final quarter of 2011 they are, in order, 123 billion, 124 billion and 20 billion.

    124 billion is indeed larger than 123 billion. But the 124 billion is not profits, it is profits plus self employed income.

    Which is and was my point.

  7. Pingback: Doubling down on error

  8. A very small point on the Harrowell/Worstall discussion. As Tim concedes, it is hard to know how self-employed income is split between profit and wages. I suspect that with the exception of footballers and entertainers, the higher the earnings the more is profit eg partners at large professional firms, family businesses etc.

    However, the real point of my commenting was not to adjudicate but to compliment AH on this excellent line:

    “I know you’re not a member of the reality-based community, but I thought the rightwing operationalisation of post-modern thinking had stopped short of opting out of arithmetic as yet more of the liberal metropolitan elite’s so-called expert consensus.”

    And congratulations also to Mr W for having the good grace to quote it on his blog as well as his rebuttal (whether or not correct).

  9. The translation is wrong. As Random Lurker said, “increased” means “bigger” in the original text. I’m spanish, i can read ;). 46,2% is bigger than 46%. Just because 0,2% is bigger than 0%.
    Your point has change a lot in three times in three responses my friend. (1º 50%-50%), (2º wrong translation of bigger), (3º now self employed income).

  10. “one of the reason of this “surpass” is that because of high unamployment many workers were pushed in self employment, thus are counted as “profits” and not as “wages””
    Again, Lurker is right. The number of self employment people is the only thing that’s raising right now. (well, and the unemployment).

  11. I find that claim “For the first time on record, the share of Spanish GDP accounted for by profits exceeded that accounted for by wages” quite extraordinary.

    Obviously, people are just forgetting about taxes and assuming that everything which is not wages is profits (which is what Worstall also pointed out right away).

    Different countries produce statistics in different ways, but e.g. this ILO report:
    http://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/—publ/documents/publication/wcms_145265.pdf
    shows that for Spain, the share of wages has actually *increased* slightly in 2008-2009, compared to long term trends.

    We have enough difficulties already with the economic situation; why make it more difficult by spreading messages like this which are designed to make people angry, not inform them?

  12. They state that business income as a percentage of GDP *increased* by 46.2%.

    Do you think Spanish businesses’ income increased by 46.2% in the first quarter? I don’t.

    find that claim “For the first time on record, the share of Spanish GDP accounted for by profits exceeded that accounted for by wages” quite extraordinary. Obviously, people are just forgetting about taxes and assuming that everything which is not wages is profits (which is what Worstall also pointed out right away).

    No. No. It’s perfectly clear in the original. The figure of 46% refers to wages. The figure of 46.2% refers to business income, including the self employed. The first is smaller than the second. Whatever happens with taxes does not change that, it’s just derailment trolling.

    Further, even Tim’s google-translation points out that the self-employed were always counted as part of profit. There is no apples/oranges comparison. This has not changed.

    the share of wages has actually *increased* slightly in 2008-2009, compared to long term trends

    2008 is ancient history.

    one of the reason of this “surpass” is that because of high unamployment many workers were pushed in self employment, thus are counted as “profits” and not as “wages”

    This is a good point.

  13. Alex: “2008 is ancient history.”

    We may of course say so; however, let’s wait what the comparable statistics will say about 2011.

    In any case, saying that the income of the self-employed is “profits” is in my opinion quite misleading. If the numbers change, it’s more to indicate the increasing uncertainty for the income of people who have moved from regular employment to trying to make their living by being self-employed. It’s not about profits of corporations paid out as dividends, etc.

  14. “In any case, saying that the income of the self-employed is “profits” is in my opinion quite misleading.”

    I understand this point, I think it’s also Tim Worstall’s point; but I disagree.
    I think that in literal terms, self employed gains are “profits” by definition.
    However many people, me included, when hear “wages” and “profits” think “labor” and “capital”; from this point of view, self eployed’s “profits” are really part of labor, and not of capital, so labelling those as profits is misleading.
    On the other hand, many “wages”, such as CEO’s wages, are really part of “capital”, not of “labor”; so if we want to split self employed’s “profits” from total profits, we should also split CEO’s wages from wages (and also all that high wages that come from having a degree at a very expensive instititutions, or from having the right friends etc.).

    That said, I think that the interesting thing is that profits (capital) are growing while wages (labor) are falling; I think that this has been the case in many countries for many years now but the crisis is showing this in a starker light. Wether profits really surpassed wages in Spain is not interesting in itself, unless we compare this measure with other historical measures (that indeed show that “capital” profits are rising I think).

  15. “However many people, me included, when hear “wages” and “profits” think “labor” and “capital”; from this point of view, self eployed’s “profits” are really part of labor, and not of capital, so labelling those as profits is misleading.”

    Quite. This is actually why, in these national statistics, we describe self employment income as “mixed income”. Because we know that it’s some mixture of a return to capital and a return to labour but we don’t know what the mixture is. Thus we measure it separately.

  16. Random Lurker:

    However many people, me included, when hear “wages” and “profits” think “labor” and “capital”; from this point of view, self eployed’s “profits” are really part of labor, and not of capital, so labelling those as profits is misleading.
    On the other hand, many “wages”, such as CEO’s wages, are really part of “capital”, not of “labor”;

    Perhaps I’m not so good in expressing myself in English but the former point is exactly what I meant, so no disagreement.

    However, we do have a disagreement about the latter one: I don’t consider CEO’s wages “capital” income. CEOs are just servants of the owners. They get paid for their work – yes, sometimes they get paid too much, but still, they are compensated for their (supposed) work, it’s not capital gains, profits.

    Overall, I would be a bit surprised to see actual profits grow very hugely these times. It tends to be the other way round in economic recessions: capital gains take a direct hit, they plunge, whereas wages are fixed cost and as such there is much less elasticity. In my country, there has been a lot of talk tabout income inequality as well as capital gains; due to biased reporting, people are simply repeating untruths to each other. The time when we had a local maximum of income equality and a local minimum of capital gains was around 1993, at the bottom of a devastating recession (worse than what we’ve seen since 2008). That time wasn’t fun. People just forget that small capital gains and large income equality meant rising unemployment, falling taxs revenue, and cuts in all public services and transfers, to avoid going the way of Greece today.

Comments are closed.