9 ms·

The Future of Work: Why Wages Aren't Keeping Up

59 points by bpolania 11y ago

phreeza 11y ago
Please link to the actual article, not the snippet on a blog: http://www.psmag.com/business-economics/the-future-of-work-why-wages-arent-keeping-up http://www.psmag.com/business-economics/the-future-of-work-w...
- euroclydon 11y ago
  Thanks. That article was pretty short. I can't imagine how short the blog was. Interesting that the author spends most his words explaining the rent concept, then abruptly ends with speculation that the rise of temp workers, agency workers, part-time workers, basically everyone who is not an FTE, it to blame for labor not capturing the financial benefit of increased productivity. The only solution to this problem is going to be through the tax system. If you hire me to shovel dirt all day long, and one day an inventor sells you a more productive shovel which you give to me, I don't really deserve more pay because I'm shoveling dirt better. But commerce and tax laws are the purview of the democracy, how much money the business owners need to pay back to society for the benefits they receive, and also so society doesn't burn their homes and factories down and kill them, is a matter public policy.
  - logfromblammo 11y ago
    I disagree. If I am a dirt-shoveler with a v1.0 shovel, and I can make a hole with volume of 8 cubic yards in 8 hours, that sets the business expectation for how much a typical dirt-shoveler can do, and how much it costs to dig an additional cubic yard of holes. Namely, it costs one hour of dirt-shoveler labor. If the v2.0 shovel allows me to dig a hole with volume of 10 cubic yards in 8 hours, that reduces the marginal cost of digging an additional cubic yard of holes. It now costs 0.8 hours of dirt-shoveler labor. In the short term, the demand for new holes is unchanged, but the demand for shoveler labor has shifted left, as its supply is unchanged. In the long term, the marginal dirt-shovelers--especially those without v2.0 shovels--exit the market. The supply curve for shoveler labor shifts left, and price goes back up, as quantity decreases. Deserving doesn't enter into it. If dirt-shoveler pay per hour does not go up to reflect the increase in productivity, some shovelers will stop digging for their living and go do something else (or remain unemployed), because they will get paid zero for the holes that they are no longer able to dig. The ones who survive the cull will only be able to demand more pay when someone wants a hole dug, but can't get anyone to do it at the offered rate. The cost of a v2.0 shovel is now a barrier to entry to the profitable region of the dirt-shoveler business. Now extrapolate to mechanized earth-moving equipment. If you need to excavate a basement for a new building, you hire one guy with the $100000 v46.3 shovel, rather than 20 guys with 20 v3.1 shovels. At this point, just owning the shovel is profitable, because that guy can just rent it out to people who know how to dig holes, but lack the necessary accumulated capital to be competitive in the business. But those 20 guys you didn't hire to dig your basement are still out there, and they're getting hungry. And they're looking at their crappy v3.1 shovels and thinking, "If I sharpened this edge a bit, it would make a decent weapon, and I could take that v46.3 shovel by force." There are many possible solutions, because the problem is making multiple economic variables (aka human motivations and desires) balance. A change in the taxation regime is only one, and not necessarily the best one.
    - euroclydon 11y ago
      I wasn't sure if you were moving the goalposts through your first five paragraphs, but paragraph six confirmed it: In my hypothetical, the employer owns the shovel. In yours it's the worker. If you own your own tools that you use for work, you're probably an independent entity like a contractor, not an employee. You seem to confirm this at the end of paragraph six with the example of a homeowner hiring twenty shovel laborers -- surely this homeowner does not intend them as FTEs.
      - logfromblammo 11y ago
        The shovel doesn't care who owns it. If the employer owns it, the employee gets paid less because the shovel rental is effectively deducted from his pay. If the worker owns it, the end consumer can (theoretically) pay less, because the worker does not need to pay any rent on his tools. The purchase cost of a better shovel is a barrier to entry, not a marginal cost of production. By the time you get up to giant mechanized excavators, the barrier is so high that a guy with just a spade and a dream can never get that far, because anyone either renting or owning a better tool can outcompete him at every turn, and the rent on a better shovel may be such a large proportion of the cost of shoveling that the laborer using it could never accumulate enough savings to buy his own tool. That's where you have to rely on an external force to change the status quo, "force" being the key word. The guy who doesn't play nice gets metaphorically whacked in the head with a shovel. Taxes are just one of many ways to do that.
        euroclydon 11y ago
        If the little guy gets a mechanized excavator, he's not so little any more. And wouldn't that be his goal anyhow? Why would anyone want to go through the trouble to buy one, if there were not a high barrier to entry?
- sctb 11y ago
  We updated the link from http://economistsview.typepad.com/economistsview/2015/08/the-future-of-work-why-wages-arent-keeping-up.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View%29 http://economistsview.typepad.com/economistsview/2015/08/the..., which points to this.
littletimmy 11y ago
Why would wages ever keep up with productivity? Wages will always be a race to the bottom between employees who have to work to not be homeless. The capitalists can exploit this to make wages as low as possible. Productivity has nothing to do with it.
- merpnderp 11y ago
  The means of production have never been more accessible. The ability to learn new skills/trades has never been easier. If the average person can't take advantage of them, then it probably has less to do with capitalism and more to do with the government and corporatist conspiring to keep them out of the game.
  - zajd 11y ago
    Learning a new skill or trade doesn't give you access to the "means of production", capital does. And inequality is as bad as it's ever been over the past 50 years. A few tech startup darlings doesn't change that.
    - jerf 11y ago
      Learning a new skill or trade is capital. Capital is not just hard equipment. To the extent that was an acceptable approximation in the 20th century, it's less so today. To forstall the next likely objection, no, of course it is not the only form of capital. And "less so" != "completely the opposite of". And further, obviously, learning a trade isn't millions and millions of dollars worth of capital, nor does it instantly catapault you into the leagues of the wealthy, just because you learned how to fix plumbing or write code. And it obviously isn't liquid. But it is a form of capital. If you don't understand this, you can't understand unions. If labor doesn't have this capital, then unions can't work, because if labor really are just interchangable cogs that bring nothing but mere clock time to the equation, then labor has no bargaining position whatsoever. Unions only work because labor has this illiquid capital to bargain with. (There are some obvious further elaborations on this theme, such as the way the capital gets devalued by increasing the supply by globalization, and the continuous importation of cheap labor via illegal immigration. IMHO there's a certain amount of contradiction in being shocked at how labor is devalued in the market place and being pro-"open borders". It may not be the only cause and effect, but it's certainly involved.)
jokoon 11y ago
We live in an age where technology is always progressing, and it constantly make engineers and technicians obsolete. I think the bottleneck in our economy is teaching higher level of scientific knowledge. The money has always been into technology being a big lever for profit, but it has never been accountable for the social cost. I do think that people today can't cope with the fact that their work position can be made obsolete and that they should be asked to learn new things again. Obviously it's not anchored in how labor works. I think even workers should spend some time learning new things to not become obsolete, something like 1/20 of their time. I guess MOOCs will be one solution, but I kinda doubt it. I don't think that most people really like to work in tech, but it's going to be a transformation that will keep happening, and I don't think there will be a stop to it.
- richmarr 11y ago
  > The money has always been into technology being a big lever for > profit, but it has never been accountable for the social cost Totally. A good start might be large companies paying equitable taxes.
  - paulhauggis 11y ago
    Companies already pay a huge amount of taxes. When you see that ge didnt pay taxes, its because of loss rollover.
    - logfromblammo 11y ago
      In other words, it is because the tax code allows those with a greater investment in studying the tax code and in playing stupid accounting shell games to pay less in taxes. It would likely be preferable to instead tie the effective tax rate more directly to those activities that actually address useful economic activity. I am leaning increasingly towards the fairest tax being a function based upon one's increase in wealth (subtracting some fixed amount for actual humans--probably median household income) that asymptotically approaches 50% as your positive change in wealth approaches infinity. If you earned $10000 and spent $10000, any tax would just have to be offset by a subsidy somewhere else. If you earned $100000 and spent $100000, you're at least stimulating your local economy, and probably making wiser choices while spending your own money than anyone else would in spending other people's money. If you earn $100000 and spend $20000, that leaves $80000 that you didn't actually need to use this year. Everyone else would probably prefer that you had spent it. So maybe you're allowed a tax-free increase of $50000, and you lose $10000 of the remaining $30000 to taxes. If you earned $10M and only spent $100k, you might pay $4.925M for the tax. The same equation would still work for corporations, because paying dividends would count as spending for them. You end up only taxing the winners in the economy--those who are getting richer--and never more than they could reasonably afford to lose. How could such a system be subverted? You would have to set up a system where you could control property for your own benefit without legally owning it. You'd probably see a resurgence in executive perks, such as company-provided housing and cars. It would definitely blow more air into the education bubble.
dataker 11y ago
This is a very simplistic view of capitalism and ignores larger issues. One ignored issue is inflation itself. Although it had a profound impact in the middle class, it has nothing to do with 'evil business owners' trying to make more money. Then, unions shouldn't bargain with monopolistic corporations. Why? Because monopolistic corporations shouldn't exist 99% of the time. That's the root of the problem, not the lack of analogous monopolistic labor unions.
- pjc50 11y ago
  While it's convenient to reduce inflation to a single number so that you can summarise an economy with MV=PQ, it's not the full picture. Over the medium to long term, price levels between different sorts of goods drift widely, as do the relative returns of capital and labour. For example, monetary injection via QE has little effect on retail prices, oil prices (which have been falling), or wages, but tends to inflate financial and real estate asset prices.
  - dataker 11y ago
    Reference to contrast arguments http://www.worldculturepictorial.com/images/content_3/college-education-us-inflation.jpg http://www.worldculturepictorial.com/images/content_3/colleg... http://i.huffpost.com/gen/926781/thumbs/s-COLLEGE-TEXTBOOKS-PRICES-480x360.jpg?6 http://i.huffpost.com/gen/926781/thumbs/s-COLLEGE-TEXTBOOKS-...
- clownio 11y ago
  You realize the person who you accuse of having a "very simplistic view of capitalism" (the author) has been studying economics for most of his life and won a Nobel Prize for it? Currently a professor of economics at MIT? Etc...
  - dataker 11y ago
    Ad hominem. One could argue the same about Paul Krugman.
sideband 11y ago
I'd argue that flat wages are not (entirely) a failure of the labor market and are partly a consequence of modern life requiring less resources. Think about it: When was the last time you spent 15 minutes on the phone getting directions to someplace, got lost, had to find a payphone or stop places asking for directions, and then had to ask around to find somebody once you got there? Or paid a travel agent to plan your next vacation? Bought an expensive widget because at the only store you could find it at and were willing to drive to not knowing you could get it for half as much in the next state over? Used up a few hours looking for a specialty contractor in the newspaper classifieds or yellow pages and then had a bad experience because you had no way to know what their previous customers thought of them? These used to be very common experiences. For many people in America, modern life requires far less time and money to be comfortable than it did just a few decades ago and as a result workers are seeing less and less incentive to push for higher wages.
- minikites 11y ago
  Except the cost of necessities (energy, housing, etc) is still rising: http://www.mybudget360.com/wp-content/uploads/2014/10/college-tuition.png http://www.mybudget360.com/wp-content/uploads/2014/10/colleg... Computers and TVs are cheap but everything else is expensive.
  - deleted 11y ago
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- pjc50 11y ago
  less and less incentive to push for higher wages What's most people's biggest expenditure out of wages? Housing. Which has been increasing in price, both rental and purchase. Besides, higher wages are their own incentive. Nobody says "As a footballer/company director/etc I feel that a million pounds a week is enough, I'm not interested in a pay rise."
  - sideband 11y ago
    For most employed people, more pay == more work. And if their kids are fed and happy, if they get to do the things they love on the weekends, if their house is big enough for a shindig with the whole family, if they're comfortable, then the value of more work might not be apparent to them.
roymurdock 11y ago
Robert Solow, the author of this article, is one of the most well-respected economists of his generation. He derived the "Solow Growth Model" which underpins a good deal of modern macroeconomics. [1] Here, he states that it is customary to think of the value of a firm in terms of (1) returns to labor and (2) returns to capital. He argues that there is a third factor, (3) position in the market, that provides a rent to the owners and shareholders of the company. Just as a title/deed provides the owner with a geographical rent opportunity, regulation creates an opportunity for a company to extract an abstract sort of monopolistic rent within a market. Estimates of this component of rent lie between 10-30% of GDP, and it changes as a function of regulation. He argues that the division of this rent "has been shifting against the labor side for several decades" starting under the Reagan administration, due to (1) the decline of unions and collective bargaining (right to work laws, "hardening of business attitudes") and (2) the "casualization" of labor, i.e. the increase in part-time/contract-based labor that many companies are able to force onto a workforce that would, in many instances, favor full time employment. These casual workers "have little or no effective claim to the rent component of any firm's added value." In summary, the aggregate workforce is losing bargaining power whereas the aggregate business owners (investors) are gaining bargaining power within the economy, allowing the investors and owners to carve out a larger share of rent profits. While Solow does point out that international competition and "the biased nature of new technology" both play a role in this phenomenon, he strives to emphasize the importance of internal social change in the division of economic rent. Personally, I think that he is dancing around a much more controversial thesis: inequality is a direct result of poor government regulation and oversight (starting with Reagan) which is due to a deterioration of the separation of powers between the public and the private sectors as corporate owners and investors have been able to buy influence in Congress and further support/entrench regulation that favors their own interests. Unions/collections of workers no longer have the power to combat corporate interests at the political/legal level and are being dismantled/shafted which leads to many individual laborers being shafted as well, which is the cause of the nonexistent wage growth. [1] http://www.unc.edu/~jbhill/Solow-Growth-Model.pdf http://www.unc.edu/~jbhill/Solow-Growth-Model.pdf
- mc32 11y ago
  That could perhaps explain this phenomenon in the U.S. but this phenomenon is not solely expressed in The US. It is exemplary in the U.S. but it is also seen in more socialist countries as well. China, Brazil, as well as European economies.
lordnacho 11y ago
The negotiation angle has long been missing from economic discussions. The classic line is that you get circa what your marginal productivity is, but that's under some rather stringent assumptions. Also it sidesteps how exactly you calculate marginal productivity. There's very little talk about the dynamics of wage settings, ie how do you actually reach a number? From what I can see, as a guy who's been in a few businesses, the salary amount starts off with just a simple assumption: we'll pay roughly whatever everyone else is paying for a certain job. You then go and find a bunch of likely-sounding candidates and bring them in to interview. (OT: This is a complete mess, because you're not as good at this as you think, even taking into account lordnacho's law.) You will fall in love with one or two of these people, probably not more. You'll then throw out a lowball number on the game theoretical rationale that they'll either ask for more or be happy with it. If there are special circumstances like the guy being a recent grad, we can say a bunch of stuff like "you're learning a lot from us, you need us more than we need you" (yeah, it's a shitty thing to say) and count on other bosses thinking similarly. The candidate can then take it or leave it, or if they have another offer, use that to get a bit more. But it's really a silly dance around a fairly static anchor, silly because people can get pissed off over small amounts of money. I've worked with more than one guy who thought he was a great negotiator because he managed to talk some guy down by a few grand, even though a $700M hedge fund makes that amount in about three hours. Now why would wages ever change, if this is roughly what happens? I never came across a situation where there wasn't a huge queue of people wanting whatever jobs we put up. In fact, there was no real rationale for setting any particular salary, other than "that's the market". My thinking is that salaries really only go up when companies find zero suitable people for a given job, or when they get a particularly large number of offerees coming back to them saying they took some other job. And what would create a situation where there were very few candidates for a job? 1) Collective action. Apart from the London Tube, this seems to be out of fashion. It also seems to be hard to organise something like software devs, given they live in very different cost areas scattered around the world. 2) Growth. When things are booming, companies get desperate. They can see the demand, customers are telling them they want product, but they can't get the staff they need to build the product. But since they can see the demand, offering a bit more to grab those staff is a bit easier on the executive mind.
- 11y ago
mc32 11y ago
With globalization and the lifting from abject poverty the greatest numbers and percentages of people, should we continue to see wage growth in areas where people are relatively better off? Should we not expect some normalization, a meeting of levels? It's a bit selfish to think that the fist world should continue to get richer while the poor remain poor, which is what protectionism would get, alongside stagnation. Another sidepoint, when people get wealthier the more they spend and the more they contribute to resource depletion. I'm of course in no position to even guess what the optimal average wealth would be but I'm sure having everyone with too much disposable income leads to wastefulness. On the other hand, let the people at the bottom catch up and let them breathe. That's what we should be pushing for.
- jahnu 11y ago
  I agree that the rich of the world are morally obliged to help the rest catch up. The analysis you put forth suggests the wages that otherwise would go to the middle and working classes are going to people in developing countries but is it not also true that whilst wages are stagnating the wealth generated by increased productivity is largely accumulating amongst the already super rich?
  - mc32 11y ago
    Yes some of the wealth which could otherwise could go to the workers of first world countries is going to the upper management of these companies, but I think that is made possible because of globalization. If the domestic costs get too high, they can move production to Mexico, or they can move development to Russia or India. This keeps a lid on wages and at the same time allows more for the management class. If we were to see international competition in management workers, they too would experience stagnation and companies would see increased profits. Let's look at the wage growth of professionals who implement barriers to entry from foreign trained professionals like doctors, lawyers, etc. Have their wages stagnated?
    - jazzyk 11y ago
      As for doctors, yes, stagnated to some extent (albeit at a nice level :-)). But the reasons are entirely different - the cause is the growing, cancerous (and greedy) layer of bureaucracy on top of actual producers (doctors). But that's yet another topic.
serve_yay 11y ago
Capitalism involves a struggle between labor and capital. Or perhaps another way to say it would be that if capital could do what it wanted without labor, it would. And capital is winning in that struggle, for most jobs there are more qualified people than jobs. I don't see why it's so bad to say; this strikes me as a predictable development of a capitalist economy.

59 points by bpolania 11y ago

Please link to the actual article, not the snippet on a blog: http://www.psmag.com/business-economics/the-future-of-work-why-wages-arent-keeping-up http://www.psmag.com/business-economics/the-future-of-work-w...

euroclydon 11y ago
Thanks. That article was pretty short. I can't imagine how short the blog was. Interesting that the author spends most his words explaining the rent concept, then abruptly ends with speculation that the rise of temp workers, agency workers, part-time workers, basically everyone who is not an FTE, it to blame for labor not capturing the financial benefit of increased productivity. The only solution to this problem is going to be through the tax system. If you hire me to shovel dirt all day long, and one day an inventor sells you a more productive shovel which you give to me, I don't really deserve more pay because I'm shoveling dirt better. But commerce and tax laws are the purview of the democracy, how much money the business owners need to pay back to society for the benefits they receive, and also so society doesn't burn their homes and factories down and kill them, is a matter public policy.
- logfromblammo 11y ago
  I disagree. If I am a dirt-shoveler with a v1.0 shovel, and I can make a hole with volume of 8 cubic yards in 8 hours, that sets the business expectation for how much a typical dirt-shoveler can do, and how much it costs to dig an additional cubic yard of holes. Namely, it costs one hour of dirt-shoveler labor. If the v2.0 shovel allows me to dig a hole with volume of 10 cubic yards in 8 hours, that reduces the marginal cost of digging an additional cubic yard of holes. It now costs 0.8 hours of dirt-shoveler labor. In the short term, the demand for new holes is unchanged, but the demand for shoveler labor has shifted left, as its supply is unchanged. In the long term, the marginal dirt-shovelers--especially those without v2.0 shovels--exit the market. The supply curve for shoveler labor shifts left, and price goes back up, as quantity decreases. Deserving doesn't enter into it. If dirt-shoveler pay per hour does not go up to reflect the increase in productivity, some shovelers will stop digging for their living and go do something else (or remain unemployed), because they will get paid zero for the holes that they are no longer able to dig. The ones who survive the cull will only be able to demand more pay when someone wants a hole dug, but can't get anyone to do it at the offered rate. The cost of a v2.0 shovel is now a barrier to entry to the profitable region of the dirt-shoveler business. Now extrapolate to mechanized earth-moving equipment. If you need to excavate a basement for a new building, you hire one guy with the $100000 v46.3 shovel, rather than 20 guys with 20 v3.1 shovels. At this point, just owning the shovel is profitable, because that guy can just rent it out to people who know how to dig holes, but lack the necessary accumulated capital to be competitive in the business. But those 20 guys you didn't hire to dig your basement are still out there, and they're getting hungry. And they're looking at their crappy v3.1 shovels and thinking, "If I sharpened this edge a bit, it would make a decent weapon, and I could take that v46.3 shovel by force." There are many possible solutions, because the problem is making multiple economic variables (aka human motivations and desires) balance. A change in the taxation regime is only one, and not necessarily the best one.
  - euroclydon 11y ago
    I wasn't sure if you were moving the goalposts through your first five paragraphs, but paragraph six confirmed it: In my hypothetical, the employer owns the shovel. In yours it's the worker. If you own your own tools that you use for work, you're probably an independent entity like a contractor, not an employee. You seem to confirm this at the end of paragraph six with the example of a homeowner hiring twenty shovel laborers -- surely this homeowner does not intend them as FTEs.
    - logfromblammo 11y ago
      The shovel doesn't care who owns it. If the employer owns it, the employee gets paid less because the shovel rental is effectively deducted from his pay. If the worker owns it, the end consumer can (theoretically) pay less, because the worker does not need to pay any rent on his tools. The purchase cost of a better shovel is a barrier to entry, not a marginal cost of production. By the time you get up to giant mechanized excavators, the barrier is so high that a guy with just a spade and a dream can never get that far, because anyone either renting or owning a better tool can outcompete him at every turn, and the rent on a better shovel may be such a large proportion of the cost of shoveling that the laborer using it could never accumulate enough savings to buy his own tool. That's where you have to rely on an external force to change the status quo, "force" being the key word. The guy who doesn't play nice gets metaphorically whacked in the head with a shovel. Taxes are just one of many ways to do that.
      - euroclydon 11y ago
        If the little guy gets a mechanized excavator, he's not so little any more. And wouldn't that be his goal anyhow? Why would anyone want to go through the trouble to buy one, if there were not a high barrier to entry?
sctb 11y ago
We updated the link from http://economistsview.typepad.com/economistsview/2015/08/the-future-of-work-why-wages-arent-keeping-up.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View%29 http://economistsview.typepad.com/economistsview/2015/08/the..., which points to this.

littletimmy 11y ago

Why would wages ever keep up with productivity? Wages will always be a race to the bottom between employees who have to work to not be homeless. The capitalists can exploit this to make wages as low as possible. Productivity has nothing to do with it.

merpnderp 11y ago
The means of production have never been more accessible. The ability to learn new skills/trades has never been easier. If the average person can't take advantage of them, then it probably has less to do with capitalism and more to do with the government and corporatist conspiring to keep them out of the game.
- zajd 11y ago
  Learning a new skill or trade doesn't give you access to the "means of production", capital does. And inequality is as bad as it's ever been over the past 50 years. A few tech startup darlings doesn't change that.
  - jerf 11y ago
    Learning a new skill or trade is capital. Capital is not just hard equipment. To the extent that was an acceptable approximation in the 20th century, it's less so today. To forstall the next likely objection, no, of course it is not the only form of capital. And "less so" != "completely the opposite of". And further, obviously, learning a trade isn't millions and millions of dollars worth of capital, nor does it instantly catapault you into the leagues of the wealthy, just because you learned how to fix plumbing or write code. And it obviously isn't liquid. But it is a form of capital. If you don't understand this, you can't understand unions. If labor doesn't have this capital, then unions can't work, because if labor really are just interchangable cogs that bring nothing but mere clock time to the equation, then labor has no bargaining position whatsoever. Unions only work because labor has this illiquid capital to bargain with. (There are some obvious further elaborations on this theme, such as the way the capital gets devalued by increasing the supply by globalization, and the continuous importation of cheap labor via illegal immigration. IMHO there's a certain amount of contradiction in being shocked at how labor is devalued in the market place and being pro-"open borders". It may not be the only cause and effect, but it's certainly involved.)

jokoon 11y ago

We live in an age where technology is always progressing, and it constantly make engineers and technicians obsolete. I think the bottleneck in our economy is teaching higher level of scientific knowledge. The money has always been into technology being a big lever for profit, but it has never been accountable for the social cost. I do think that people today can't cope with the fact that their work position can be made obsolete and that they should be asked to learn new things again. Obviously it's not anchored in how labor works. I think even workers should spend some time learning new things to not become obsolete, something like 1/20 of their time. I guess MOOCs will be one solution, but I kinda doubt it. I don't think that most people really like to work in tech, but it's going to be a transformation that will keep happening, and I don't think there will be a stop to it.

richmarr 11y ago
> The money has always been into technology being a big lever for > profit, but it has never been accountable for the social cost Totally. A good start might be large companies paying equitable taxes.
- paulhauggis 11y ago
  Companies already pay a huge amount of taxes. When you see that ge didnt pay taxes, its because of loss rollover.
  - logfromblammo 11y ago
    In other words, it is because the tax code allows those with a greater investment in studying the tax code and in playing stupid accounting shell games to pay less in taxes. It would likely be preferable to instead tie the effective tax rate more directly to those activities that actually address useful economic activity. I am leaning increasingly towards the fairest tax being a function based upon one's increase in wealth (subtracting some fixed amount for actual humans--probably median household income) that asymptotically approaches 50% as your positive change in wealth approaches infinity. If you earned $10000 and spent $10000, any tax would just have to be offset by a subsidy somewhere else. If you earned $100000 and spent $100000, you're at least stimulating your local economy, and probably making wiser choices while spending your own money than anyone else would in spending other people's money. If you earn $100000 and spend $20000, that leaves $80000 that you didn't actually need to use this year. Everyone else would probably prefer that you had spent it. So maybe you're allowed a tax-free increase of $50000, and you lose $10000 of the remaining $30000 to taxes. If you earned $10M and only spent $100k, you might pay $4.925M for the tax. The same equation would still work for corporations, because paying dividends would count as spending for them. You end up only taxing the winners in the economy--those who are getting richer--and never more than they could reasonably afford to lose. How could such a system be subverted? You would have to set up a system where you could control property for your own benefit without legally owning it. You'd probably see a resurgence in executive perks, such as company-provided housing and cars. It would definitely blow more air into the education bubble.

dataker 11y ago

This is a very simplistic view of capitalism and ignores larger issues. One ignored issue is inflation itself. Although it had a profound impact in the middle class, it has nothing to do with 'evil business owners' trying to make more money. Then, unions shouldn't bargain with monopolistic corporations. Why? Because monopolistic corporations shouldn't exist 99% of the time. That's the root of the problem, not the lack of analogous monopolistic labor unions.

pjc50 11y ago
While it's convenient to reduce inflation to a single number so that you can summarise an economy with MV=PQ, it's not the full picture. Over the medium to long term, price levels between different sorts of goods drift widely, as do the relative returns of capital and labour. For example, monetary injection via QE has little effect on retail prices, oil prices (which have been falling), or wages, but tends to inflate financial and real estate asset prices.
- dataker 11y ago
  Reference to contrast arguments http://www.worldculturepictorial.com/images/content_3/college-education-us-inflation.jpg http://www.worldculturepictorial.com/images/content_3/colleg... http://i.huffpost.com/gen/926781/thumbs/s-COLLEGE-TEXTBOOKS-PRICES-480x360.jpg?6 http://i.huffpost.com/gen/926781/thumbs/s-COLLEGE-TEXTBOOKS-...
clownio 11y ago
You realize the person who you accuse of having a "very simplistic view of capitalism" (the author) has been studying economics for most of his life and won a Nobel Prize for it? Currently a professor of economics at MIT? Etc...
- dataker 11y ago
  Ad hominem. One could argue the same about Paul Krugman.

sideband 11y ago

I'd argue that flat wages are not (entirely) a failure of the labor market and are partly a consequence of modern life requiring less resources. Think about it: When was the last time you spent 15 minutes on the phone getting directions to someplace, got lost, had to find a payphone or stop places asking for directions, and then had to ask around to find somebody once you got there? Or paid a travel agent to plan your next vacation? Bought an expensive widget because at the only store you could find it at and were willing to drive to not knowing you could get it for half as much in the next state over? Used up a few hours looking for a specialty contractor in the newspaper classifieds or yellow pages and then had a bad experience because you had no way to know what their previous customers thought of them? These used to be very common experiences. For many people in America, modern life requires far less time and money to be comfortable than it did just a few decades ago and as a result workers are seeing less and less incentive to push for higher wages.

minikites 11y ago
Except the cost of necessities (energy, housing, etc) is still rising: http://www.mybudget360.com/wp-content/uploads/2014/10/college-tuition.png http://www.mybudget360.com/wp-content/uploads/2014/10/colleg... Computers and TVs are cheap but everything else is expensive.
- deleted 11y ago
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pjc50 11y ago
less and less incentive to push for higher wages What's most people's biggest expenditure out of wages? Housing. Which has been increasing in price, both rental and purchase. Besides, higher wages are their own incentive. Nobody says "As a footballer/company director/etc I feel that a million pounds a week is enough, I'm not interested in a pay rise."
- sideband 11y ago
  For most employed people, more pay == more work. And if their kids are fed and happy, if they get to do the things they love on the weekends, if their house is big enough for a shindig with the whole family, if they're comfortable, then the value of more work might not be apparent to them.

roymurdock 11y ago

Robert Solow, the author of this article, is one of the most well-respected economists of his generation. He derived the "Solow Growth Model" which underpins a good deal of modern macroeconomics. [1] Here, he states that it is customary to think of the value of a firm in terms of (1) returns to labor and (2) returns to capital. He argues that there is a third factor, (3) position in the market, that provides a rent to the owners and shareholders of the company. Just as a title/deed provides the owner with a geographical rent opportunity, regulation creates an opportunity for a company to extract an abstract sort of monopolistic rent within a market. Estimates of this component of rent lie between 10-30% of GDP, and it changes as a function of regulation. He argues that the division of this rent "has been shifting against the labor side for several decades" starting under the Reagan administration, due to (1) the decline of unions and collective bargaining (right to work laws, "hardening of business attitudes") and (2) the "casualization" of labor, i.e. the increase in part-time/contract-based labor that many companies are able to force onto a workforce that would, in many instances, favor full time employment. These casual workers "have little or no effective claim to the rent component of any firm's added value." In summary, the aggregate workforce is losing bargaining power whereas the aggregate business owners (investors) are gaining bargaining power within the economy, allowing the investors and owners to carve out a larger share of rent profits. While Solow does point out that international competition and "the biased nature of new technology" both play a role in this phenomenon, he strives to emphasize the importance of internal social change in the division of economic rent. Personally, I think that he is dancing around a much more controversial thesis: inequality is a direct result of poor government regulation and oversight (starting with Reagan) which is due to a deterioration of the separation of powers between the public and the private sectors as corporate owners and investors have been able to buy influence in Congress and further support/entrench regulation that favors their own interests. Unions/collections of workers no longer have the power to combat corporate interests at the political/legal level and are being dismantled/shafted which leads to many individual laborers being shafted as well, which is the cause of the nonexistent wage growth. [1] http://www.unc.edu/~jbhill/Solow-Growth-Model.pdf http://www.unc.edu/~jbhill/Solow-Growth-Model.pdf

mc32 11y ago
That could perhaps explain this phenomenon in the U.S. but this phenomenon is not solely expressed in The US. It is exemplary in the U.S. but it is also seen in more socialist countries as well. China, Brazil, as well as European economies.

lordnacho 11y ago

The negotiation angle has long been missing from economic discussions. The classic line is that you get circa what your marginal productivity is, but that's under some rather stringent assumptions. Also it sidesteps how exactly you calculate marginal productivity. There's very little talk about the dynamics of wage settings, ie how do you actually reach a number? From what I can see, as a guy who's been in a few businesses, the salary amount starts off with just a simple assumption: we'll pay roughly whatever everyone else is paying for a certain job. You then go and find a bunch of likely-sounding candidates and bring them in to interview. (OT: This is a complete mess, because you're not as good at this as you think, even taking into account lordnacho's law.) You will fall in love with one or two of these people, probably not more. You'll then throw out a lowball number on the game theoretical rationale that they'll either ask for more or be happy with it. If there are special circumstances like the guy being a recent grad, we can say a bunch of stuff like "you're learning a lot from us, you need us more than we need you" (yeah, it's a shitty thing to say) and count on other bosses thinking similarly. The candidate can then take it or leave it, or if they have another offer, use that to get a bit more. But it's really a silly dance around a fairly static anchor, silly because people can get pissed off over small amounts of money. I've worked with more than one guy who thought he was a great negotiator because he managed to talk some guy down by a few grand, even though a $700M hedge fund makes that amount in about three hours. Now why would wages ever change, if this is roughly what happens? I never came across a situation where there wasn't a huge queue of people wanting whatever jobs we put up. In fact, there was no real rationale for setting any particular salary, other than "that's the market". My thinking is that salaries really only go up when companies find zero suitable people for a given job, or when they get a particularly large number of offerees coming back to them saying they took some other job. And what would create a situation where there were very few candidates for a job? 1) Collective action. Apart from the London Tube, this seems to be out of fashion. It also seems to be hard to organise something like software devs, given they live in very different cost areas scattered around the world. 2) Growth. When things are booming, companies get desperate. They can see the demand, customers are telling them they want product, but they can't get the staff they need to build the product. But since they can see the demand, offering a bit more to grab those staff is a bit easier on the executive mind.

11y ago

mc32 11y ago

With globalization and the lifting from abject poverty the greatest numbers and percentages of people, should we continue to see wage growth in areas where people are relatively better off? Should we not expect some normalization, a meeting of levels? It's a bit selfish to think that the fist world should continue to get richer while the poor remain poor, which is what protectionism would get, alongside stagnation. Another sidepoint, when people get wealthier the more they spend and the more they contribute to resource depletion. I'm of course in no position to even guess what the optimal average wealth would be but I'm sure having everyone with too much disposable income leads to wastefulness. On the other hand, let the people at the bottom catch up and let them breathe. That's what we should be pushing for.

jahnu 11y ago
I agree that the rich of the world are morally obliged to help the rest catch up. The analysis you put forth suggests the wages that otherwise would go to the middle and working classes are going to people in developing countries but is it not also true that whilst wages are stagnating the wealth generated by increased productivity is largely accumulating amongst the already super rich?
- mc32 11y ago
  Yes some of the wealth which could otherwise could go to the workers of first world countries is going to the upper management of these companies, but I think that is made possible because of globalization. If the domestic costs get too high, they can move production to Mexico, or they can move development to Russia or India. This keeps a lid on wages and at the same time allows more for the management class. If we were to see international competition in management workers, they too would experience stagnation and companies would see increased profits. Let's look at the wage growth of professionals who implement barriers to entry from foreign trained professionals like doctors, lawyers, etc. Have their wages stagnated?
  - jazzyk 11y ago
    As for doctors, yes, stagnated to some extent (albeit at a nice level :-)). But the reasons are entirely different - the cause is the growing, cancerous (and greedy) layer of bureaucracy on top of actual producers (doctors). But that's yet another topic.

serve_yay 11y ago

Capitalism involves a struggle between labor and capital. Or perhaps another way to say it would be that if capital could do what it wanted without labor, it would. And capital is winning in that struggle, for most jobs there are more qualified people than jobs. I don't see why it's so bad to say; this strikes me as a predictable development of a capitalist economy.