Sources: European Commission, Thomson Reuters and Norges Bank  Technological advances have reduced the relative cost of capital goods. Tasks have been taken over by robots and other capital equipment. This probably explains some of the decline in the labour share.7 The emergence of global technology companies is also reducing the labour share. With broad platforms and vast numbers of users, they dominate the market, which translates into both market power and substantial profits. The winner takes all. A few technology companies stand out by virtue of their size (Chart 7). Alphabet is one example. 80 percent of the world’s web searches are done through its Google search engine.8 Another example is Amazon. In 2017, the company accounted for 44 percent of all US online retail sales. Chart 7 The world’s largest listed companies. Market capitalisation in billions of USD1) Apple Alphabet Microsoft Amazon Facebook Tencent Berkshire Hathaway JPMorgan ICBC Johnson&Johnson ExxonMobil Bank of America 0  100  200  300  400  500  600  700  800  1) Market capitalisation at 9 February 2018. Source: Bloomberg  The decline in the labour share can primarily be explained by the fundamental transformation of the global labour market in recent decades. More countries are participating in global trade, labour mobility has increased, and offshoring production 7 Hagelund, K., E. W. Nordbø and L. Sauvik (2017): “Lønnsandelen” [The labour share], Aktuell kommentar 9/2017, Norges Bank (Norwegian only). 8 Source: Financial Times, January 2018 (https://www.ft.com/content/95d16c88-f795-11e7-88f7-5465a6ce1a00). 7  to low-cost countries has become easier.
The rate on the ECB’s deposit facility is used for the current and expected policy rate. 2) June 2021. Sources: Bloomberg and Norges Bank  10  As conditions normalise, interest rates will likely remain lower than they were a few decades ago. The structural conditions that have depressed the global neutral interest rate will not reverse overnight.10  Norges Bank Economic perspectives 15 february 2018  Central bank asset purchases have also made a mark beyond fixed income markets. We have seen a sharp rise in equity and real estate prices (Chart 12). When the major central banks put monetary easing into reverse, investors who have taken on added risk may seek to rebalance their portfolios. This could lead to financial market volatility, as we have noted in recent weeks. Strengthening global growth will help reduce the risk of sharp movements in equity markets. But a bigger correction than seen so far cannot be ruled out. Chart 12 Equity prices and earnings per share. 1) Standard & Poor’s 500. Index. 1970 = 100 3000  3000  Share index Earnings per share  2500  2500  2000  2000  1500  1500  1000  1000  500  500 0  0 1970  1975  1980  1985  1990  1995  2000  2005  2010  2015  1) The latest oberservation at the end of each quarter. For 2018 Q1, data from 9 February 2018 are used.