The Factor Shares Debate: An Update

Abstract

The division of the national product between capital and labour is an old topic in economic theory but since the ending of New Zealand's old system of national accounts which were prepared on an income basis; it has been harder to track the trends in factor shares in New Zealand. The paper assembles figures to see whether there is any sign that the change in political conjuncture (and hence potentially the balance of power in the labour market) in the mid-1980s had any effect on factor shares in the product. The hypothesis is that the 1984 election marked the end of a long period of relative gains for labour at the expense of capital, and was followed in the following two decades by a trend in the other direction, to which the Employment Contracts Act might have contributed. As usual the numbers speak only softly and have to be interpreted with the greatest caution.