<p>Wage/labor share of income/output is total compensation of employees divided by total output (See <a href="https://edoc.hu-berlin.de/bitstream/handle/18452/5009/69.pdf?sequence=1&amp;isAllowed=y" rel="nofollow noreferrer">Schneider 2011</a>). This share is typically calculated using nominal wages and nominal GDP.</p>
<p>If you want to calculate wage/labor share of income/output then you should use total wages divided by nominal output:</p>
<p><span class="math-container">$$ s_L = \frac{WL}{PY}$$</span></p>
<p>Where <span class="math-container">$s_L$</span> is the share, <span class="math-container">$WL$</span> are total wages (wages <span class="math-container">$W$</span> times labor input <span class="math-container">$L$</span>) and <span class="math-container">$PY$</span> is nominal GDP (real GDP <span class="math-container">$Y$</span> times aggregate prices <span class="math-container">$P$</span>). However, note it's not necessary to find statistics for <span class="math-container">$P$</span>, <span class="math-container">$Y$</span>, <span class="math-container">$W$</span> and <span class="math-container">$L$</span> separately most countries will track statistics for both <span class="math-container">$PY$</span> and <span class="math-container">$WL$</span> directly.</p>
<p>Note you <strong>cannot</strong> calculate it from wage price index alone. That is simply impossible. Wage price index only tells you how much wages risen over some period of time relative to some base point in time. That is insufficient information to figure out what was total compensation. In fact from wage price index you cannot even figure out what <span class="math-container">$W$</span> is, you can just use it to track how <span class="math-container">$W$</span> change over some period of time. And wage price index gives absolutely no information about <span class="math-container">$L$</span>, so it is impossible to calculate the wage/labor share of income/output using only output and wage share index.</p>

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2021-05-20T07:39:12.053Z
2021-05-20T08:27:07.767Z
2021-05-20T08:27:07.767Z
1muflon1
<p>The recent Australian budget projects trends over the next four years.  I'm looking at a summary <a href="https://www.news.com.au/finance/economy/australian-economy/aussie-wage-growth-expected-to-remain-at-record-low-as-house-prices-rocket/news-story/d7d5b50ab45930e924944ff9beb2c920" rel="nofollow noreferrer">here</a>.  If I want to calculate the share of GDP going to wages, should I compare the percentage changes in the Wage Price Index to the changes in Real GDP or Nominal GDP?</p>

<gdp><wages>
real or nominal GDP to compare to wage price index?
PlanetAtkinson
# real or nominal GDP to compare to wage price index?

(Asked by: username_0 on 2021-05-20)

The recent Australian budget projects trends over the next four years. I'm looking at a summary [here](https://www.news.com.au/finance/economy/australian-economy/aussie-wage-growth-expected-to-remain-at-record-low-as-house-prices-rocket/news-story/d7d5b50ab45930e924944ff9beb2c920). If I want to calculate the share of GDP going to wages, should I compare the percentage changes in the Wage Price Index to the changes in Real GDP or Nominal GDP?

**Tags:** gdp, wages


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## 1 answers

### Answer by username_1 on 2021-05-20. Score: 2

Wage/labor share of income/output is total compensation of employees divided by total output (See [Schneider 2011](https://edoc.hu-berlin.de/bitstream/handle/18452/5009/69.pdf?sequence=1&isAllowed=y)). This share is typically calculated using nominal wages and nominal GDP.

If you want to calculate wage/labor share of income/output then you should use total wages divided by nominal output:

$$ s\_L = \frac{WL}{PY}$$

Where $s\_L$ is the share, $WL$ are total wages (wages $W$ times labor input $L$) and $PY$ is nominal GDP (real GDP $Y$ times aggregate prices $P$). However, note it's not necessary to find statistics for $P$, $Y$, $W$ and $L$ separately most countries will track statistics for both $PY$ and $WL$ directly.

Note you **cannot** calculate it from wage price index alone. That is simply impossible. Wage price index only tells you how much wages risen over some period of time relative to some base point in time. That is insufficient information to figure out what was total compensation. In fact from wage price index you cannot even figure out what $W$ is, you can just use it to track how $W$ change over some period of time. And wage price index gives absolutely no information about $L$, so it is impossible to calculate the wage/labor share of income/output using only output and wage share index.


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