The work of Thomas Piketty and his co-authors shows that wages represent a declining share of GDP in several countries, notably in the Anglo-Saxon world. Switzerland is an exception to this pattern, with the share of wages rising steadily since 2010. In fact, it is firms’ profits that are showing a sustained decline, a development that is quite unique in international comparison.
The income view of GDP
One way of breaking down nominal GDP is from an income perspective, showing how factors of production are remunerated. Specifically, production is paid for in the form of wages, depreciation, net profits, and taxes on production (net of subsidies). The figure below shows that between 1990 and 2010 this breakdown remained broadly stable, with the wage bill fluctuating around 56%, for example.
The situation has changed since 2010, with a clear increase in the share of wages, which now represents almost 60% of GDP. Conversely, the share of net profits is showing a downward trend, reaching 15% of GDP compared with almost 20% previously.
This development may come as a surprise, as strong wage increases are not the prevailing impression. Two points should be borne in mind. First, the wage bill also reflects the level of employment, and rises when unemployment falls even if wages remain unchanged. Second, the figures show the shares to GDP. If the rise in GDP is moderate, for example due to low inflation, then the wage bill may rise even if in absolute terms it only increases moderately. Of course, it is possible that the distribution of the wage bill between low and high wages has changed, but this is a separate issue from the distribution of income between labor and capital.
If there is a challenge at the macroeconomic level, it is more in the form of pressure on firms' profits, and has been for nearly a decade. Faced with numerous challenges, such as the strong franc and sluggish European growth, Switzerland has reacted as a company would to maintain its business volume, employment and wages, by absorbing the pressure in profits. This carriesa long-term risk if this pressure weighs on investments and innovation, which are often financed out of retained earnings.
A broader perspective
To assess the Swiss situation in international comparison, we rely on OECD data. The figure below shows the evolution of the share of the wage bill. The graph on the left shows the situation up to 2005 (average share of GDP), and the graph on the right shows the change between 2005 and the last quarter of 2023. Two observations emerge. First, Switzerland was initially a country where a substantial proportion of GDP went to wages until 2005. A little-known fact is that this was also the case in the USA. Second, this share has risen in Switzerland since 2005, whereas it has fallen in most countries, especially in the US.
What about other factors? The OECD data provide information on gross profits (sum of depreciation and net profits), as well as taxes net of subsidies. Until 2005, the share of profits in Switzerland was in line with the international average. Since then, this share has fallen, in contrast to most other countries, which show either stability or an increase. As for net taxes, their share of GDP in our country is at the lower end of the scale compared to other countries, and has seen only a moderate change compared to a more marked decline outside our borders.
