Brazil Update and Labor's Declining Share of National Income
June 26, 2013
BRASILIA — President Dilma Rousseff met Wednesday with Brazil's restive labor unions as she worked out the details of a national plebiscite on political reform in the wake of two weeks of street protests.
Demonstrators however took to the streets once again in at least 12 cities including southeastern Belo Horizonte, where Confederations Cup hosts Brazil will face Uruguay in a semi-final later in the day.
The country's five biggest labor unions have called for strikes and demonstrations on July 11 as Brazil confronts a wave of unrest reflecting deep public anger over poor social services and rampant corruption.
Union leaders said they would ask Rousseff to consider shortening the work day, a readjustment of pension and bigger investments in health and education, as demanded by hundreds of thousands of Brazilian protesters in recent days.
Fury over the state of public services in the world's seventh largest economy and the high cost of staging both the Confederations Cup and next year's World Cup has prompted Brazilians to fill the streets demanding change.
Under pressure, Rousseff pledged her leftist government would hold a plebiscite on sweeping political reform, earmarked $25 billion for public transport and urged tougher penalties for those found guilty of corruption.
She dropped an earlier idea of holding a referendum on the creation of a constituent assembly on reform, in the face of strong protests from lawmakers and jurists.
The plebiscite would be non-binding and allow for debate of several issues, while a referendum involves a popular vote which is binding on the government.
"The president will forward to the presidents of the House of Deputies and the Senate the proposal by the executive branch for the organization of a plebiscite," Education Minister Aloizio Mercadante said Tuesday.
Officials said Rousseff would consult with parties allied to her ruling leftist Workers Party (PT) as well as the opposition to craft the questions related to political reform that will be submitted in the popular plebiscite.
"There is a need in Brazil to include the people in the discussions on reforms. Brazil is tired of reforms that come from the top," Supreme Court chief Joaquim Barbosa said Tuesday after meeting with Rousseff.
Mercadante said all efforts would be made to hold the plebiscite as soon as possible, as presidential elections are scheduled for October next year.
As a sign the government is listening to public complaints about corruption, the Supreme Court on Wednesday ordered the immediate detention of lawmaker Natan Donadon, who was sentenced to 13 years in jail in 2010 for embezzlement -- the first such move in 25 years.
Rousseff is seeking to regain the political initiative after mass demonstrations that stunned her government, bringing 1.2 million people into the streets last Thursday alone.
The protesters scored a major victory Tuesday when Congress scrapped a proposed constitutional amendment that sought to curb the investigative powers of independent public prosecutors -- a key demand of the demonstrators.
Passage of the amendment would have made it harder to combat corruption.
In Belo Horizonte, the capital of Minas Gerais state, demonstrators blocked roads and set a bus ablaze as up to 60,000 protesters were expected to flood the streets when the Brazil-Uruguay match kicks off at 1900 GMT.
State authorities said 1,500 soldiers were to back up 5,700 police and firefighters in case the protests turn violent, as has occurred in various parts of the country over the past two weeks.
Press reports meanwhile said players for the Brazil-Uruguay clash may be flown into the stadium by helicopter to avoid the protesters.
Minas Gerais Governor Antonio Anastasia announced that authorities were determined to keep the demonstrators two kilometers (1.2 miles) away from the stadium.
Late Tuesday, some 10,000 people, mainly students, protested at Montes Claros in the north of the state, prompting many bars and businesses to close early for fear of looting.
In Brasilia, 40,000 people were expected to stage a protest march Wednesday under the watchful eyes of 4,000 police.
Bruce Bartlett, writing in the NY Times Economix blog
June 25, 2013
Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”
In a recent post, I noted the declining share of national income going to labor in the form of wages and benefits and the rising share going to capital income like dividends. Before talking about solutions to this problem, it’s important to understand that this is a worldwide phenomenon not confined to the United States. This fact is documented in recent studies.
For many years, economists said they believed that labor’s share of income was an empirical relationship so stable that it was virtually a constant. In fact, it was called “Bowley’s law,” after the British economic historian Arthur Bowley, who first identified it almost 100 years ago.
It takes time for economists to separate trends from the normal ups and downs in various types of economic data, and it took a while before they realized that labor’s falling share went beyond what could be explained by the recent recession. The latest Economic Report of the President (see Pages 60-61) discusses this phenomenon and suggests that it results from changes in technology, increasing globalization, changes in market structure and the decline of labor unions.
More importantly, the report notes that labor’s falling share is even more pronounced in other developed countries. The reason this is important is that it allows us to avoid focusing too much on policies and factors unique to the United States. For example, labor’s share of income has fallen even in countries with much stronger protection for labor unions and greater unionization of the labor force.
Studies by international economics agencies have begun looking at the problem of labor’s declining share of income across national boundaries.
Last year, the Organization for Economic Cooperation and Development devoted a long chapter in its annual Employment Outlook to the problem. It noted that labor’s share appears to have started falling more than 30 years ago. Since the early 2000s, labor’s median share of income across all its member countries has fallen to 61.7 percent from 66.1 percent.