As it happens, empirical data disproves this narrative. What we see from the data is that the labour share of GDP stayed constant or even decreased slightly during the welfare state decade. It then increased slightly in the seventies, a decade when five great crises hit the world economy: the first oil crisis, the Nixon shock, the abandoning of the gold standard, the second oil shock and the Volker shock. This was primarily caused by decreased economic activity (the denominator falling) and sticky wages (the numerator staying stable). From the early eighties onwards, with the onset of the neoliberal era we see a continuous and marked drop in the labour share of GDP.
In the case of the welfare states of the EU 15, we see an oscillation of the labour share of GDP between 70 and 72 per cent of GDP in the sixties. With the arrival of the crisis in the eighties this share increases by no more than two percentage points, then starts to decrease to reach a low point below 65 per cent just before the Great Recession of 2008. In the case of the US, which did not have a welfare state, we see a clear downward trend from 1944 onwards, albeit with some oscillation. The slow downward trend accelerates considerably during the Reagan, Bush Snr, Bush Junior and Obama presidencies, with somewhat of a reversal during the Clinton years. It is also visible from the data that there was no significant difference between the changes in the labour share of public and private employees. All in all, the welfare states did not go bankrupt because of a profit squeeze or the over-empowerment of labour. The narrative did convince some voters, and was used to curb and roll back trade union rights. With the gradual neoliberalisation of the left (Mitterand, Papandreou, Blair, Schröder) even the one time sceptics bought into the mainstream narrative.