<p>It is actually not used widely in inequality research nowadays, but in the past it was used because it was argued that most people deriving labor income are poor, whereas most people deriving income from capital are rich.</p>
<p>As a result increase in the capital share of income would imply that the ‘rich’ get larger share of total income and thus  inequality is increasing and vice versa.</p>
<p>Also, in the past it was very difficult to have access to good micro data and calculation of these shares is easy even with aggregate data.</p>
<p>However, this indicator relies crucially on the assumption that rich derive their income from capital and poor from the labor, which might have been true a century ago, but nowadays a lot of inequality is driven by superstar employees (<a href="https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA13569?casa_token=fbO768oy07cAAAAA:SD11WPrTzXyeuva5K_IynAe0JBLRsTm8HSCBH08istk_Sad6D66QqL7NHCxN-x3MQ8NheUZxW9gWLAg" rel="nofollow noreferrer">Gabaix et al 2016</a>). Moreover, capital is also more widely spread, and often modern old age pensions are not just based on pay as you go principle but they derive income from investments into capital.</p>
<p>In addition, in the past micro-data was scarce so people had to rely on indicators based on aggregated data but that is no longer the case in developed countries.</p>
<p>Consequently, modern inequality research uses more sophisticated measures based on income/wealth distributions. You can find a good overview of more modern approaches to measuring inequality and poverty in the Poverty Dynamics by Kruijk or you can have look at Measuring inequality by McGregor et al.</p>

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2021-10-09T13:57:12.773Z
2021-10-09T13:57:12.773Z
1muflon1
<p>Why is this indicator (the share of the labor force in GDP, including wages and transfers to social protection, %) used as an indicator that indicates the level of inequality in society?</p>

<gdp><financial-economics><nonexpert>
the share of the labor force in GDP, including wages and transfers to social protection, %
Mari
# the share of the labor force in GDP, including wages and transfers to social protection, %

(Asked by: username_0 on 2021-10-09)

Why is this indicator (the share of the labor force in GDP, including wages and transfers to social protection, %) used as an indicator that indicates the level of inequality in society?

**Tags:** gdp, financial-economics, nonexpert

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## 1 answers

### Answer by username_1 on 2021-10-09. Score: 1

It is actually not used widely in inequality research nowadays, but in the past it was used because it was argued that most people deriving labor income are poor, whereas most people deriving income from capital are rich.

As a result increase in the capital share of income would imply that the ‘rich’ get larger share of total income and thus inequality is increasing and vice versa.

Also, in the past it was very difficult to have access to good micro data and calculation of these shares is easy even with aggregate data.

However, this indicator relies crucially on the assumption that rich derive their income from capital and poor from the labor, which might have been true a century ago, but nowadays a lot of inequality is driven by superstar employees ([Gabaix et al 2016](https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA13569?casa_token=fbO768oy07cAAAAA:SD11WPrTzXyeuva5K_IynAe0JBLRsTm8HSCBH08istk_Sad6D66QqL7NHCxN-x3MQ8NheUZxW9gWLAg)). Moreover, capital is also more widely spread, and often modern old age pensions are not just based on pay as you go principle but they derive income from investments into capital.

In addition, in the past micro-data was scarce so people had to rely on indicators based on aggregated data but that is no longer the case in developed countries.

Consequently, modern inequality research uses more sophisticated measures based on income/wealth distributions. You can find a good overview of more modern approaches to measuring inequality and poverty in the Poverty Dynamics by Kruijk or you can have look at Measuring inequality by McGregor et al.


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