Understanding the Historic Divergence Between Productivity and a Worker’s Pay [pdf](s1.epi.org)
s1.epi.org
Understanding the Historic Divergence Between Productivity and a Worker’s Pay [pdf]
http://s1.epi.org/files/2015/understanding-productivity-pay-divergence-final.pdf
5 comments
I've never thought about the job market like this before, but it makes a lot of sense, and it is a good argument for the dreaded U word. I've always personally always had ambivalent feelings towards unions, even when I was represented by one as a TA. But the idea that ideas such as this make me wonder if they do actually help balance things more then I had thought in the past.
> If there is always someone out there willing to take a job at breakeven (paycheck to paycheck living), worker pay will never go up.
Which is why you don't compete on price, but on service. If you can do for the business what other people cannot, your pay will keep going up and to the right for as long as you want.
Mind you, this could be as easy as rephrasing "I know Ruby" to "I use Ruby to increase revenue".
For instance, I am right now hiring a copy editor. I've spoken to plenty of people with a variety of hourly rates. Some said "I am really good at grammar and I am diligent and very detail oriented". Some people said "I can make your writing clearer".
Who do you think I liked more?
Which is why you don't compete on price, but on service. If you can do for the business what other people cannot, your pay will keep going up and to the right for as long as you want.
Mind you, this could be as easy as rephrasing "I know Ruby" to "I use Ruby to increase revenue".
For instance, I am right now hiring a copy editor. I've spoken to plenty of people with a variety of hourly rates. Some said "I am really good at grammar and I am diligent and very detail oriented". Some people said "I can make your writing clearer".
Who do you think I liked more?
It's not that big a deal which candidate you like, since any of them will accept a figure within 1 or 2 standard deviations of average pay for the role. Which is kinda the point...
This is written by an advocacy group, as disclosed on the first page of the pdf.
Anyway, consider the following scenario. Bob makes $10 an hour, and produces $100 of value. Obviously, this is a great bargain for Bob's employer. So much so, that another employer should be perfectly willing to offer Bob $11 to lure him away. Another sweetens it to $12 and Bob moves again. Rinse, repeat until Bob is making $100 minus the opportunity cost.
What that suggests is that a large gap between compensation and productivity is unstable, as large forces will be at work to shrink that gap. So why is inequality happening?
I suspect that productivity simply isn't increasing for a lot of jobs. Such as janitorial services - there's no automation there, the janitor with a mop and a bucket is doing the same thing he's done for decades.
The rise of computers and the internet, on the other hand, have caused the productivity of other jobs to soar enormously. For example, slightly improving the speed of the operation of a server farm can produce millions of dollars in value. I would expect that workers who can do that will be highly compensated for such value produced.
In other words, there's a growing inequality in the productivity of different kinds of jobs.
Anyway, consider the following scenario. Bob makes $10 an hour, and produces $100 of value. Obviously, this is a great bargain for Bob's employer. So much so, that another employer should be perfectly willing to offer Bob $11 to lure him away. Another sweetens it to $12 and Bob moves again. Rinse, repeat until Bob is making $100 minus the opportunity cost.
What that suggests is that a large gap between compensation and productivity is unstable, as large forces will be at work to shrink that gap. So why is inequality happening?
I suspect that productivity simply isn't increasing for a lot of jobs. Such as janitorial services - there's no automation there, the janitor with a mop and a bucket is doing the same thing he's done for decades.
The rise of computers and the internet, on the other hand, have caused the productivity of other jobs to soar enormously. For example, slightly improving the speed of the operation of a server farm can produce millions of dollars in value. I would expect that workers who can do that will be highly compensated for such value produced.
In other words, there's a growing inequality in the productivity of different kinds of jobs.
Bob's upward spiral of salary only works so long as there aren't a bunch of equally qualified Abel, Charlie, Dave, Ed, Frank, and George. If employer 2 needs someone to create that value and can pick amongst 10 employees, the salary of the job will not tend towards $100/hr.
A huge moneymaking opportunity in making 10x on investment in employees suggests that new employers will emerge to exploit it. Investment flows to where the money to be made is.
Unless, of course, they manage to keep Bob's productivity a secret, which is possible in the small but highly unlikely over an entire economy.
Unless, of course, they manage to keep Bob's productivity a secret, which is possible in the small but highly unlikely over an entire economy.
You said yourself in another post that you cannot assume that the productivity gains seen are evenly distributed. So I would propose that there is definitely an informational advantage for the company that currently employs Bob, because they know how much value Bob produces over his cost. How is another company supposed to gain this information, short of hiring Bob and finding out themselves? In which case, they rationally can really only be willing to pay Bob at some sort of expected average productivity.
The only information leak is how much Bob is currently paid. So in some ways it's actually to a company's advantage to basically average out the wages across a level based on the level's entire productivity, because it hides the truly productive from other companies. And this is exactly what we see with modern pay grades and scales.
The only information leak is how much Bob is currently paid. So in some ways it's actually to a company's advantage to basically average out the wages across a level based on the level's entire productivity, because it hides the truly productive from other companies. And this is exactly what we see with modern pay grades and scales.
More likely, it will bid down the value of the output to $10.
> What that suggests is that a large gap between compensation and productivity is unstable
The entire economy is unstable. Things are never in equilibrium.
The labor market in particular is extremely illiquid. Employees don't change jobs twice a day, and employers don't decide to start new companies just because they saw opportunity on some competent person unemployed.
Also, jobs mostly don't appear by themselves. Enterprises need capital, risk taking, and several other factors that people don't just throw around.
Your completely liquid model needs plenty of adjustment.
The entire economy is unstable. Things are never in equilibrium.
The labor market in particular is extremely illiquid. Employees don't change jobs twice a day, and employers don't decide to start new companies just because they saw opportunity on some competent person unemployed.
Also, jobs mostly don't appear by themselves. Enterprises need capital, risk taking, and several other factors that people don't just throw around.
Your completely liquid model needs plenty of adjustment.
> don't decide to start new companies just because they saw opportunity on some competent person unemployed.
Right. But they would if there were a vast number of underpaid and overproductive workers, which is the thesis of the article.
> Enterprises need capital, risk taking, and several other factors that people don't just throw around.
Recognizing that there are a lot of underpaid yet overproducing workers and exploiting that is a form of arbitrage, and you can get financing for such a business plan. It's exactly the kind of opportunity investors are looking for.
Right. But they would if there were a vast number of underpaid and overproductive workers, which is the thesis of the article.
> Enterprises need capital, risk taking, and several other factors that people don't just throw around.
Recognizing that there are a lot of underpaid yet overproducing workers and exploiting that is a form of arbitrage, and you can get financing for such a business plan. It's exactly the kind of opportunity investors are looking for.
"...you can get financing for such a business plan..."
"Hello, this is EZ-Financing And Venture Capital. How may we give you money?"
"Hi, this is Bob, Entrepreneur Extraordinare. I have identified a great opportunity that I need financing to exploit. You see, I've discovered eighteen or twenty really bright, competent people who are either unemployed or underemployed."
"What do you mean?"
"Well, there's Bill, who discovered the gene for florescence and is currently working as a pick-up-and-drop-off driver for a car dealer [that one's true], and Frank the MIT PhD mechanical engineer who lives in the ally behind Wal-Mart. There's a bunch more."
"So, what's the nature of your opportunity?"
"I have nothing specific in mind, but I'm sure if I get this group in a room, they'll come up with something brilliant!"
("Oh, and I spell my name Danger."
click
"Hello?")
"Hello, this is EZ-Financing And Venture Capital. How may we give you money?"
"Hi, this is Bob, Entrepreneur Extraordinare. I have identified a great opportunity that I need financing to exploit. You see, I've discovered eighteen or twenty really bright, competent people who are either unemployed or underemployed."
"What do you mean?"
"Well, there's Bill, who discovered the gene for florescence and is currently working as a pick-up-and-drop-off driver for a car dealer [that one's true], and Frank the MIT PhD mechanical engineer who lives in the ally behind Wal-Mart. There's a bunch more."
"So, what's the nature of your opportunity?"
"I have nothing specific in mind, but I'm sure if I get this group in a room, they'll come up with something brilliant!"
("Oh, and I spell my name Danger."
click
"Hello?")
> I have nothing specific in mind,
You'd be right that nobody wants to finance someone who has no plan.
You'd be right that nobody wants to finance someone who has no plan.
And you insist that perfect arbitrage is something that exists. In an illiquid market, arbitrage is almost non-existent.
Have you started a company some time? If so, would you ever start one for applying the work of underpaid overproductive third party workers?
Have you started a company some time? If so, would you ever start one for applying the work of underpaid overproductive third party workers?
I've started several companies over the years. And yes, I'd love to find and hire those underpaid overproductive workers. I'd hire one today if he/she could convince me I'd make back double her/his salary. I know quite a few businessmen who'd do the same.
I've never gotten a phone call inviting me to join the secret cartel of employers holding wages down. :-)
I've never gotten a phone call inviting me to join the secret cartel of employers holding wages down. :-)
As an individual contributor, it's trivial for me to provide 2x my salary in revenue or margin for a business that knows what it's doing. If the business doesn't know what it's doing and it's willing to actually let me engage with customers, 10x becomes trivial. I don't believe I'm remotely unique in this either. Perhaps the issue is the "convince me" especially if there's ego about that state of the business that's in play.
[deleted]
> Things are never in equilibrium.
Indeed, and I now think that intellectual progress in the 21st century must be done with Permanent Disequilibrium models. Equilibrium models have taken us as far as they can. Equilibrium models emerged in the 1600s and they gave us the Industrial Revolution and 300 years of economic progress. But we've gone as far as we can with them.
For educated Western policy-making elites, the world view of the last 300 years were shaped by equilibrium models. Among some of the most important:
1.) the Law of Supply and Demand
2.) Darwin's Theory Of Natural Selection
3.) Newton's Laws Of Thermodynamics
The whole idea that you can take a piece of graph paper and trace some functions on it (functions which have a cross over point) is an idea with vast power, and it created the world we know today. But I suspect that we've also mined that particular style of intellectual research for as much as we can.
The argument against Permanent Disequilibrium models used to be that the math was too hard for humans to handle conveniently. Certainly, that is true. For a point of comparison, I can easily imagine how the Law Of Supply and Demand effects the price of bread. And yet, I am utterly unable to imagine the price of bread in a Permanent Disequilibrium model, for that involves how each persons response to any change in Supply or Demand sets off a new ripple in the Supply or Demand that propagates across the graph.
But now we have computers. And, better yet, we have a paradigm that allows us to make use of those computers: agent based simulations. And agent based simulations gives us an easy way to see the outcome of Permanent Disequilibrium models.
More so, we are lucky enough to have a generation growing up that has grown up playing video games. And the better video games (massive online multi player etc) are agent based simulations. So we have a whole generation coming along that has an intuitive feel for the advantages offered by agent based simulations.
The future of economics will be created by those who grew up playing World Or Warcraft and Starcraft and so many other games. And this generation will free us from the tyranny of idiotic equilibrium models, such as the one posted by WalterBright.
Indeed, and I now think that intellectual progress in the 21st century must be done with Permanent Disequilibrium models. Equilibrium models have taken us as far as they can. Equilibrium models emerged in the 1600s and they gave us the Industrial Revolution and 300 years of economic progress. But we've gone as far as we can with them.
For educated Western policy-making elites, the world view of the last 300 years were shaped by equilibrium models. Among some of the most important:
1.) the Law of Supply and Demand
2.) Darwin's Theory Of Natural Selection
3.) Newton's Laws Of Thermodynamics
The whole idea that you can take a piece of graph paper and trace some functions on it (functions which have a cross over point) is an idea with vast power, and it created the world we know today. But I suspect that we've also mined that particular style of intellectual research for as much as we can.
The argument against Permanent Disequilibrium models used to be that the math was too hard for humans to handle conveniently. Certainly, that is true. For a point of comparison, I can easily imagine how the Law Of Supply and Demand effects the price of bread. And yet, I am utterly unable to imagine the price of bread in a Permanent Disequilibrium model, for that involves how each persons response to any change in Supply or Demand sets off a new ripple in the Supply or Demand that propagates across the graph.
But now we have computers. And, better yet, we have a paradigm that allows us to make use of those computers: agent based simulations. And agent based simulations gives us an easy way to see the outcome of Permanent Disequilibrium models.
More so, we are lucky enough to have a generation growing up that has grown up playing video games. And the better video games (massive online multi player etc) are agent based simulations. So we have a whole generation coming along that has an intuitive feel for the advantages offered by agent based simulations.
The future of economics will be created by those who grew up playing World Or Warcraft and Starcraft and so many other games. And this generation will free us from the tyranny of idiotic equilibrium models, such as the one posted by WalterBright.
That's unlikely, because the current model of money is basically reified politically power. And there is no theory of economics which starts from that POV - not even Marxism.
In fact money isn't reified political power - we simply treat it as if it is, unconsciously, because we've never considered the alternatives.
The real drivers of economic activity are collective intelligence and organisational ability. Politics is a subset of organisational talent, but it's typically a toxic instantiation of a principle that has many other possible expressions.
I think useful models are going to have to work back from that. By the time they're done, contemporary models of economics will have gone the way of phlogiston and epicycles.
In fact money isn't reified political power - we simply treat it as if it is, unconsciously, because we've never considered the alternatives.
The real drivers of economic activity are collective intelligence and organisational ability. Politics is a subset of organisational talent, but it's typically a toxic instantiation of a principle that has many other possible expressions.
I think useful models are going to have to work back from that. By the time they're done, contemporary models of economics will have gone the way of phlogiston and epicycles.
There may also be inequality of information and negotiation skills as well.
In Bob's scenario, maybe Bob doesn't know his value and is happy to take the job at $10 per hour. Bill, who works with Bob, negotiated $50 per hour. Bill has no idea how much Bob makes. Bob took $10 per hour because he compared that to a market rate for workers in that industry. Bill knows that their skills are relatively rare and that their work creates a lot of value.
In Bob's scenario, maybe Bob doesn't know his value and is happy to take the job at $10 per hour. Bill, who works with Bob, negotiated $50 per hour. Bill has no idea how much Bob makes. Bob took $10 per hour because he compared that to a market rate for workers in that industry. Bill knows that their skills are relatively rare and that their work creates a lot of value.
I addressed the bit about keeping Bob's productivity a secret in another post here.
> I suspect that productivity simply isn't increasing for a lot of jobs.
It is a lot simpler:
What happens when you have fixed demand combined with huge increases in productivity?
If an individual has enough leverage they can capture the extra value.... otherwise they will actually find themselves worse off.
For example, a cleaner today can handle roughly 3-4x the floorspace (etc) compared to a cleaner 50 years ago. That is a clear productivity increase. And I'd argue people still value clean shops etc as much as they used to.
> I would expect that workers who can do that will be highly compensated for such value produced.
It's more because as a group they tend to have better leverage and they aren't currently demand constrained.
For example I have enough cash in liquid assets to cover 12 months living expenses, and I work in a field where I'm unlikely to be out of work for more than a month. Even more importantly a good chunk of the other workers with my skill-set also have lots of leverage.
So if my job adds $1 million to the bottom line I'm in a good position to negotiate for a decent chunk of it. Especially because demand far outstrips supply.
It is a lot simpler:
What happens when you have fixed demand combined with huge increases in productivity?
If an individual has enough leverage they can capture the extra value.... otherwise they will actually find themselves worse off.
For example, a cleaner today can handle roughly 3-4x the floorspace (etc) compared to a cleaner 50 years ago. That is a clear productivity increase. And I'd argue people still value clean shops etc as much as they used to.
> I would expect that workers who can do that will be highly compensated for such value produced.
It's more because as a group they tend to have better leverage and they aren't currently demand constrained.
For example I have enough cash in liquid assets to cover 12 months living expenses, and I work in a field where I'm unlikely to be out of work for more than a month. Even more importantly a good chunk of the other workers with my skill-set also have lots of leverage.
So if my job adds $1 million to the bottom line I'm in a good position to negotiate for a decent chunk of it. Especially because demand far outstrips supply.
> I suspect that productivity simply isn't increasing for a lot of jobs. Such as janitorial services - there's no automation there, the janitor with a mop and a bucket is doing the same thing he's done for decades.
I don't think that is true. Look at the tech and machinery a janitor uses to day vs what would have been used in the 70's. Plus, nowadays buildings are often designed to make janitorial work in them as efficient as possible. There are certainly many fewer janitors / m^2 building area today than in the 70's so in a way you can janitors productivity has increased a lot.
In my apartment a water pipe broke recently which required immediate attention from a repairman otherwise it would have caused a flood. The closest one working standby which was dispatched by the landlord was over 20 km away. So for an apartment population of 200k+ you have only 2-3 repairmen servicing emergency problems. That's incredibly efficient.
I don't think that is true. Look at the tech and machinery a janitor uses to day vs what would have been used in the 70's. Plus, nowadays buildings are often designed to make janitorial work in them as efficient as possible. There are certainly many fewer janitors / m^2 building area today than in the 70's so in a way you can janitors productivity has increased a lot.
In my apartment a water pipe broke recently which required immediate attention from a repairman otherwise it would have caused a flood. The closest one working standby which was dispatched by the landlord was over 20 km away. So for an apartment population of 200k+ you have only 2-3 repairmen servicing emergency problems. That's incredibly efficient.
This very exact argument was addressed by the paper. There are industries where productivity doesn't increase, but there are also many industries (within IT and without) where productivity has increased a lot, and a proportional increase in wages has not materialized. It may be that industries with stagnating productivity experience stagnating wages, but when even industries with rapidly growing productivity experience stagnating wages, another explanation is warranted.
You're right, it does address it, but mostly by a bunch of handwaving. It does not address my central point of why employers aren't luring away these highly producing yet underpaid workers, or why more businesses aren't being started to employ them if there's a surplus of them.
Furthermore, their argument continues to assume that the increasing productivity of an entire business can be assigned more or less equally across all of its employees. However, this is not true by inspection - how did the janitorial staff's productivity improve? The productivity increase of the entire business may be the result of the efforts of a very small number of the employees, such as one who improved the manufacturing process.
And lastly, it assumes that being better educated means more productive. This is not necessarily true if one is in a job that does not make use of that education. For example, it's hard to see how having a degree makes one a more productive cashier.
Furthermore, their argument continues to assume that the increasing productivity of an entire business can be assigned more or less equally across all of its employees. However, this is not true by inspection - how did the janitorial staff's productivity improve? The productivity increase of the entire business may be the result of the efforts of a very small number of the employees, such as one who improved the manufacturing process.
And lastly, it assumes that being better educated means more productive. This is not necessarily true if one is in a job that does not make use of that education. For example, it's hard to see how having a degree makes one a more productive cashier.
They're not luring them away because they don't need to. There is a seemingly endless supply of labor willing to work for a tiny fraction of the value they deliver. Why offer $20/hr to lure Bob away from his $10/hr job when there are a hundred other workers lined up outside your door offering to do the job for $9/hr?
Why aren't there a hundred employers springing up to quintuple their money in this way? Businesses constantly are formed to exploit far, far smaller differences in buy low / sell high opportunities.
Heck, I'd do it myself if I could find such opportunities!
Heck, I'd do it myself if I could find such opportunities!
Because the supply of capital is kept restricted to ensure that there is not an excess of demand for labor. Do you think the ruling classes are idiots?
When labor was given control of the central banks after the Great Depression we had 40 years of massive growth in productivity and wages. Once the capitalists took back control in the 1970s (after the threat of expropriation had receded) they quickly got things back on track and ever since wages have stagnated while profits have soared.
When labor was given control of the central banks after the Great Depression we had 40 years of massive growth in productivity and wages. Once the capitalists took back control in the 1970s (after the threat of expropriation had receded) they quickly got things back on track and ever since wages have stagnated while profits have soared.
> Do you think the ruling classes are idiots?
Hey, hey now. The ruling class doesn't disproportionately influence/control the market. It's the magic fairy dust of the Free Market that keeps the Just World as it is. /s
Hey, hey now. The ruling class doesn't disproportionately influence/control the market. It's the magic fairy dust of the Free Market that keeps the Just World as it is. /s
I don't think we know why this is not happening. The author of the paper doesn't seem to know either. The data simply shows this huge and growing gap between worker productivity and wages.
Are you questioning the accuracy of the data? Perhaps it's not been measured correctly and wages actually HAVE been going up in proportion to productivity since 1973.
Are you questioning the accuracy of the data? Perhaps it's not been measured correctly and wages actually HAVE been going up in proportion to productivity since 1973.
No, not the accuracy. I question their determination of worker productivity and wages by using the average and the median, not the distribution. They did not attempt to measure the productivity of particular jobs (admittedly that's difficult to do).
In particular, they did not identify any particular job or category where productivity of that job was far higher than the pay. I do not believe it is accurate to assess the productivity of a job by dividing the productivity of an entire business by the number of employees, in fact, I suspect it to be a fundamental mistake in their methodology.
In particular, they did not identify any particular job or category where productivity of that job was far higher than the pay. I do not believe it is accurate to assess the productivity of a job by dividing the productivity of an entire business by the number of employees, in fact, I suspect it to be a fundamental mistake in their methodology.
>Finally, take an industry that these same BLS industry productivity data indicate has seen exceptionally fast productivity growth: textile mills (78 percent productivity growth just since 1997) or transportation equipment (84 percent productivity growth since 1997). (Page 20)
They did! Of course, this is just one example, but they did attempt to point out an industry where productivity growth has been very high but wages have not.
They did! Of course, this is just one example, but they did attempt to point out an industry where productivity growth has been very high but wages have not.
An industry is not a job category.
If the _average_ productivity is higher than the _average_ pay, then there must exist at least one particular job or category where productivity is higher than pay. These "underpaid" jobs may be unevenly or evenly distributed across the entire spectrum of jobs, but they must exist--unless the measurement of productivity is in question.
Sure - if all the jobs were included. You'd have to include things like the CEO, contractors, etc. The accounting for all this isn't easy. If the productivity increase comes from installing a machine, that doesn't mean the machine operator is adding more value - the machine is. The productivity increase would then accrue to whoever took the risk in buying the machine.
I would agree that it is complicated to do the accounting for this, and it's easy to get confused.
I would agree that it is complicated to do the accounting for this, and it's easy to get confused.
There are, of course. Googling "php programmer for hire" now gives you twenty ads on the right-hand side for Indian-based outsourcing firms. Many of the ads will specifically pitch the low, low cost of hiring overseas.
I do know of some programmers making million dollar plus salaries. I think it is safe to assume that they are creating huge value for their employers. And we all know of certain programmers that are negatively productive :-)
Side note on the janitorial side...but I wonder why there hasn't been a "Roomba" type creation that can handle a lot of the grunt work for that? Sure it is hard to automate scraping gum off of odd surfaces, and there are lots of floors and such, but I wonder if there's an opportunity for more robotic automation in that area.
You can employ a lot of janitors for the cost of running a fleet of Roombas. It's the classic case of tech being 90% there. You still would need a janitor to do the side jobs that the Roombas missed, and to keep an eye on them. Also things they can't do, like wiping down doorhandles etc.
Easier just to pay the janitor to mop the floors.
You could do away with Janitors if you designed the space specifically for the robot cleaning technology. But that would be designing with the object of robot cleaning in mind, which would mean ensuring no inaccessible corners, wall-hung furniture, charging/storage points. Maybe that will happen in the coming years.
Easier just to pay the janitor to mop the floors.
You could do away with Janitors if you designed the space specifically for the robot cleaning technology. But that would be designing with the object of robot cleaning in mind, which would mean ensuring no inaccessible corners, wall-hung furniture, charging/storage points. Maybe that will happen in the coming years.
People should think more about Moravec's paradox when they decide to rag on janitorial jobs.
> Anyway, consider the following scenario. Bob makes $10 an hour, and produces $100 of value. Obviously, this is a great bargain for Bob's employer. So much so, that another employer should be perfectly willing to offer Bob $11 to lure him away. Another sweetens it to $12 and Bob moves again. Rinse, repeat until Bob is making $100 minus the opportunity cost.
Except if the companies in question are Google, Apple...
Except if the companies in question are Google, Apple...
What is an employee worth, as an economic unit? In the absence of a labor shortage or non-economic forces, it's just maintenance and education cost. A dorm in Shentzen, some food, and training programs. The maintenance cost on humans hasn't increased much in recent years. Why should wages ever go up?
Rising wages means that people are being paid more than they're worth as an economic unit. Unless you're willing to take the position that people should be paid more than they're worth, you can't expect wages to rise.
Unions once explicitly took that position. A century ago, when Samuel Gompers was asked what he wanted for his union members, he answered "More". That's really what unions are for. In the 1950s and 1960s, not only did unions take that position, many manufacturing companies had come around to agree with it. It was a basic bargaining position in UAW negotiations of that era that wages must rise with productivity. The auto companies went along with this. That drove wages up across the US.
That ended in the 1970s. It was the result of explicit policy decisions.[1] Ronald Reagan is called the "Great Communicator" because he was able to sell some of those policies.
[1] http://www.h-net.org/reviews/showrev.php?id=35277
Rising wages means that people are being paid more than they're worth as an economic unit. Unless you're willing to take the position that people should be paid more than they're worth, you can't expect wages to rise.
Unions once explicitly took that position. A century ago, when Samuel Gompers was asked what he wanted for his union members, he answered "More". That's really what unions are for. In the 1950s and 1960s, not only did unions take that position, many manufacturing companies had come around to agree with it. It was a basic bargaining position in UAW negotiations of that era that wages must rise with productivity. The auto companies went along with this. That drove wages up across the US.
That ended in the 1970s. It was the result of explicit policy decisions.[1] Ronald Reagan is called the "Great Communicator" because he was able to sell some of those policies.
[1] http://www.h-net.org/reviews/showrev.php?id=35277
> Unions once explicitly took that position. A century ago, when Samuel Gompers was asked what he wanted for his union members, he answered "More".
What do companies want? Uh, more. It's not unreasonable to guess that all actors will look out for their own hide in matters like this.
What do companies want? Uh, more. It's not unreasonable to guess that all actors will look out for their own hide in matters like this.
> What is an employee worth, as an economic unit?
The value that he can add to the business.
The value that he can add to the business.
Employees should be paid at least what they are worth. Unfortunately, the workers responsible for the top 40% of the nation's productivity make only 10% of the money.
[deleted]
Can someone explain what happened in 1973 that would cause such a divergent trend?
What happened in and around 1973?
* End of the Vietnam war. Deep reductions in the draft released many young men into the workforce and allowed them to start businesses. During the war, only being an exempt student or employed in an essential job could keep you out of the way of bullets.
* The beginning of mass immigration. After the long pause between the 1924 immigration act and the 1965 act, immigration ramped up again. Mass Latin American immigration stepped up -- documented and undocumented -- in the 1970s and continued rising. Dozens of work visa programs brought in Asian and European workers.
* End of the gold exchange standard in 1971. Gold didn't actually circulate but was a synecdoche for the Bretton Woods system of fixed exchange rates. Bretton Woods kept world currencies stable and made trade very hard to sustain because currency values couldn't adjust to compensate for imbalances. Soon the European currencies would float entirely free and world trade would be able to take advantage of differential wages more easily.
* China opened. Mao Tse-Tung was getting senile by 1970 and progressives in China opened up the economy under his nose. By the late 1970s, radical leftist Deng Hsiao-Ping had seized control of the country and implemented the wholesale neoliberal reforms that have turned China from a land of North Korean and Mauritanian backwardness into a modern wealthy nation leading the world. Competition from China could be affecting wages all over.
* The first Mideast oil crisis was in 1973. The USA reached peak oil production in 1970 and started to decline, though Prudhoe Bay created a brief recovery later on.
* End of the Vietnam war. Deep reductions in the draft released many young men into the workforce and allowed them to start businesses. During the war, only being an exempt student or employed in an essential job could keep you out of the way of bullets.
* The beginning of mass immigration. After the long pause between the 1924 immigration act and the 1965 act, immigration ramped up again. Mass Latin American immigration stepped up -- documented and undocumented -- in the 1970s and continued rising. Dozens of work visa programs brought in Asian and European workers.
* End of the gold exchange standard in 1971. Gold didn't actually circulate but was a synecdoche for the Bretton Woods system of fixed exchange rates. Bretton Woods kept world currencies stable and made trade very hard to sustain because currency values couldn't adjust to compensate for imbalances. Soon the European currencies would float entirely free and world trade would be able to take advantage of differential wages more easily.
* China opened. Mao Tse-Tung was getting senile by 1970 and progressives in China opened up the economy under his nose. By the late 1970s, radical leftist Deng Hsiao-Ping had seized control of the country and implemented the wholesale neoliberal reforms that have turned China from a land of North Korean and Mauritanian backwardness into a modern wealthy nation leading the world. Competition from China could be affecting wages all over.
* The first Mideast oil crisis was in 1973. The USA reached peak oil production in 1970 and started to decline, though Prudhoe Bay created a brief recovery later on.
Bretton Woods dissolvement, first Oil Crises.
See my other post here. In a word, automation.
Automation is a minor factor so far compared with outsourcing.
Would love to hear a detailed explanation, but my guess is that the deep recession of the 1970's forced companies to look at new ways to cut costs. That was the beginning of offshoring, ending pensions, and employee turnover. The recession gave cause and excuse to make the cuts, and companies found out they never had to go back. Nor could they necessarily have, given that they were no longer competing with a bombed out world following WW2.
Nixon ended the Bretton Woods gold standard.
The way I see it is that both supply and demand are inelastic in this case, as the world only needs so much oil at a certain time and cannot ramp up easily. Supply is inelastic in this case because much of the production boom was generated by highly indebted frackers. That means they have to pump and sell no matter how low oil goes. These two factors completely kill price rebalancing.
What does this mean for worker's pay? Simple: the effect of offshoring a few jobs has similarly an outsized effect on the negotiation power of employees. If there is always someone out there willing to take a job at breakeven (paycheck to paycheck living), worker pay will never go up.
Anyone who claims it's only a few jobs or that they pay market rates for H-1B's is either ignorant or a crook.