Fair Shares between Worker and Investor:Economic Experiments on Functional Income Distribution

Declines in labor wage rate accompanied with increases in dividend or stocks are worldwide tendencies since 1980s that designates significant change in functional income distribution between capital and labor. Whereas some empirical studies in macro-level analyzes these changes are caused by institutional changes in recent decades such as financialization, studies on micro-level analysis on functional income distributions are few. However, how workers and investors consider distribution justice may have significant importance for explaining recent changes in functional distribution. If both of workers and investors contributed to a production process in different ways, what is ‘fair’ share for each of them? In this paper we have performed economic experiments, consisting of investment stage, production stage and distribution stage and examined fairness ideals in functional income distribution. In our experiment each subject is pair-matched to constitute a two-player’s team consisting of a worker and an investor. After investment stage by an investor and production stage by a worker, each team member was required to give a proposal to separate a team earning with one’s pair. We have performed two different treatments: a) with-labor treatment in which investors are required to work to earn investment funds; b) without-labor treatment in which investment funds are given to investors as their endowments. We have classified each subject’s distribution proposal into three fairness ideals: selfish; libertarian; and radical egalitarian, and examined what factors are significant for subject’s distribution justice. Our findings are threefold. 1) First, few libertarian-marginalist, who believes one should ‘get according to their production by production measurements they own’ was observed. 2) Second, labor value theory seems to have more impact on fairness ideals of individuals: in with-labor treatment investors have to work for their investment funds, both of investors and workers tend to be unselfish, whereas in without-labor treatment investors do not need to work, both of investors and workers tend to be selfish. 3) Third, investors have significant tendencies to commit libertarian egalitarian, that enable them to hold their rest investment funds as their asset, whereas workers have significant tendencies to adhere radical-egalitarian, that enable them to redistribute investor’s assets. These tendencies may be understood from self-serving bias that both of workers and investors have. Although a difference between libertarian-egalitarian and radical-egalitarian distributions seems to be not so serious for finding a compromise, however, in the case investors’ capitals do not based on their labors, a discrepancy in distribution between workers and investors seems to be created. Our experimental results may partly explain recent declines in labor-wage accompanied with institutional changes: financialization tend to make investors to adhere more selfish distribution whereas weakened collective bargaining power by unions promote those tendencies.