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Technology Change Not the Culprit in Wages Falling Behind US Productivity Gains

• CiPHPerCoder 9y ago
  This is the kind of content I like to see on HN: An approachable blog post explaining research in a field I'm not intimately familiar with.
• allthenews 9y ago
  Where does this idea come from that if a worker is granted a novel piece of technology which makes him/her more productive, he/she is entitled to a raise, without necessarily demonstrating any personal improvement or additional contribution to the company? This attitude reeks of entitlement, to me. Edit: to clarify, I believe that articles like these, which do not differentiate between what I would call intrinsic and extrinsic productivity. If a worker picks up a new language and automates away a portion of his job, his intrinsic productivity has increased, making him more valuable on the market. If I retool a station on an automotive assembly line and extrinsically increase the productivity of a worker, it doesn't make sense to presume that he is deserving in a share of that increased profit, because his value has not changed. I think there is a certain hesitation in polite [non business] society regarding this kind of measurement of human value, and so we find ourselves with what is only a puzzle in appearance. The bottom line is that a worker's compensation on average is determined by how useful he is with a certain set of tools, not how useful his tools are.
  • jhoechtl 9y ago
    Your attitude is understandable at first sight. But the consequnce is increased inequality as profits get marginalized at the top. This might lead to a decreased quality of life even for those harvestingthe net gain. It's a delicate balance.
  • Eridrus 9y ago
    It depends on how you frame the issue, if you look at an individual worker it is easy to ask if they are deserving, but if you look at broader society a more natural question should be whether we think the benefits of technology should be spread across the majority of our society or concentrated in the hands of the few. I don't know about you, but my techno-utopian fantasy involves everyone living off the labor of robots rather than struggling to house and feed themselves and their families because the elites no longer need the labor they can provide.
    • bad_user 9y ago
      That's basically Marxism. Good or bad, it's an instant red flag.
      • scroot 9y ago
        Can't tell if this pun was intentional, but I'll give it to you anyway
      • frgtpsswrdlame 9y ago
        Well you know Marx said it was inevitable so maybe we're hitting on a contradiction in capitalism that is too big to handle - the desire of individual firms to automate away their labor on a micro scale has the macro scale effect of eliminating all your consumers. It's not even good for business within a capitalist system.
        • AnimalMuppet 9y ago
          Forgive me, but "Marx said it was inevitable" is not something I find part of a convincing argument.
          • frgtpsswrdlame 9y ago
            Why?
            • lucozade 9y ago
              Possibly because he was so catastrophically wrong about the form of the society that would inevitably follow from state socialism? In a sense he was partly right i.e. almost all state socialist societies transformed in a very similar way. It was just that they transformed into totalitarian dictatorships rather than stateless utopia.
            • AnimalMuppet 9y ago
              "Appeal to authority" is a well-known fallacy. There's no exception in it for when the authority happened to be Marx. And Marx wasn't so clearly right on everything he said that just "Marx said" settles the question.
  • Bucephalus355 9y ago
    What about executive entitlement? Hasn’t their pay expanded by thousands of percent while workers wages haven’t expanded at all in 40 years? Why is asking for more money now considered such a sin? It’s argued very frequently that the CPI vastly underestimates inflation by not including things like rent and healthcare, so workers wages are dropping if anything. What makes companies entitled to think they don’t have to address this? Why can they buy technology that delivers higher results, not raise wages, and then wind up lowering wages? Eventually there will be a “#metoo” moment in business and many, many people will find themselves blacklisted for years for what is now being called “economic hate crimes”.
    • JabrZer0 9y ago
      I'm not arguing that this is the way it SHOULD be, but as far as I can tell the difference stems from a perceived difference in "area of effect". For example, an assembly line worker's job is to physically make as many widgets per hour as possible at high quality. Maybe the limit of human ability is 100 widgets/hr. If the company CEO replaces half of the workers with robots that can make 1,000 widgets/hr, the workers won't benefit from that because they're still making 100 widgets/hr, while the executive just 5x'd the factory's output, which is likely to be worth a bonus. That's simple enough, but there's a problem with this line of reasoning. What if, rather than replacing the workers, the CEO gives half of them a WidgetTool3000, which allows workers to make 1,000 widgets/hr with no extra training or effort? From the executive's position, she just did the same thing: She adjusted the process to 5x the factory's output by adding a piece of technology. But half of the workers are now producing 10x more widgets, so shouldn't they get a piece of the newly created wealth too? (Here's where I toss in the disclaimer of "this is how it works, but I'm not going to comment on the morality of it") The answer is no, according to corporate tradition. The market has already determined that the value of a worker with a set level of training and ability is $X. Amplifying the worker's output doesn't change anything about the value of the worker (in fact, nothing has changed about the worker at all. He could be swapped with someone not using a WidgetTool with no loss in value for the company) - the WidgetTool is what has created the extra value for the company - it doesn't matter who uses it. On the other hand, it sure as hell feels like crap to be the guy making 10x the widgets for the same pay.
  • Retric 9y ago
    Automation makes jobs more complex. Going from 100 workers at a factory to 50 workers means the 50 workers remaining have harder and more valuable jobs. In a hypothetical case of a single worker at a factory they need to know how everything works vs a single station. Really it's not automation that's destroying the middle class. It's information, a doctor can in theory look up symptoms without sending you to a specialist. In the case of information asymmetry the side with more information tends to collect more value and it's not workers who have gained the most information.
    • alexbeloi 9y ago
      >Going from 100 workers at a factory to 50 workers means the 50 workers remaining have harder and more valuable jobs. This is not necessarily true. It could mean turning 100 people doing skilled labor and turning them into 50 workers doing visual inspection (QA) at likely lower pay.
      • Retric 9y ago
        Someone is going to need to inspect output at both versions of the factory. Anyway, everyone can be limited to visual inspection someone needs to maintain the machines and deal with issues that develop.
        • alexbeloi 9y ago
          Maybe, my point is that isn't not a 'win' for the laborer like you seem to suggest, that maybe 50% of the people losing their jobs get to work better jobs. The people losing their jobs that are lucky enough to not be laid off are more likely be relegated to lower paying and lower skill inspection jobs rather than the higher skilled machine maintenance/development. IMO, the most likely outcome of your scenario is: 19/100 of the workers become visual inspection team, (maybe) 1/100 of the workers becomes a manager for visual inspection team, 5 external machine specialists get hired, 80/100 of the workers get laid off and 75/80 of those will continue same line of work for even less pay (supply/demand) and 5/80 will burn through any personal savings/credit to retrain themselves with the hopes of becoming one of the '5 external machine specialists' hired somewhere else. These numbers are definitely made up by me based on my own world view. From the original 100 laborers, 94/100 of the original people are worse off than before and in exchange we have 5 (maybe 6) new skilled positions. I'm not against automation or productivity or higher skilled work, I'm personally invested in all three, I just think that if we aren't aware of all the consequences that we are likely to be blind-sided by a resurgence of Luddite riots.
  • leereeves 9y ago
    Workers aren't paid what they deserve, they're paid as much (or as little) as they're able to negotiate. Why shouldn't workers, either individually, as a union, a trade guild, or society as a whole, attempt to negotiate higher wages when productivity increases make more wealth available for distribution?
    • rhino369 9y ago
      They should be able to try, but the guy who picks up the golden egg hatched by a chicken isn't going to be able to successfully negotiate a cut of the gold.
      • leereeves 9y ago
        Perhaps not individually, but if the society is a democracy and 51% of people are employed picking up golden eggs, they have more negotiating power.
    • alexbeloi 9y ago
      >Workers aren't paid what they deserve, they're paid as much (or as little) as they're able to negotiate. Deserve is a tricky notion. The capitalist will argue that workers deserve precisely their market rate, e.g. what they are able to negotiate (collectively or otherwise).
      • marnett 9y ago
        capitalists, at least in America, were very effective at destroying unions (known as union busting) and pro-worker political movements starting back in the 1940s.
        • aianus 9y ago
          Monopolies and cartels are also busted, and for the same reason. They distort markets and lead to worse outcomes for consumers and the country at large.
  • frgtpsswrdlame 9y ago
    Where does this idea come from that we must delegate all moral decision making to the market and anyone who desires to break out of market-allocated morality is entitled?
    • marnett 9y ago
      The Chicago School of Economics.
    • stale2002 9y ago
      People are free to create their own products and factories, and decide how the product of labor is distributed. If someone wants to build a factory, and give all of the profits to the laborers, then they should feel free to do so.
  • tdb7893 9y ago
    Generally the market will pay someone what their productivity is or some other company will poach that worker. This is an oversimplification but in general the market should price workers at roughly what their productivity is, assuming the market is working correctly
  • AnimalMuppet 9y ago
    > Where does this idea come from that if a worker is granted a novel piece of technology which makes him/her more productive... I think the first half of your first sentence shows... something. A bias? A misconception? I think it appears most strongly in the word "granted". Technology isn't like getting buffs in a video game. Workers aren't just "granted" new tools. They have to learn how to use them. In doing so, the workers become more productive, and therefore more valuable. A new tool improves productivity. That productivity creates more money. That money needs - deserves - to get shared in three different directions. Some goes to the tool maker. Some goes to the tool owner (the one who paid to get the tool). And some goes to the workers who use the tool. It seems to me that leaving any of the three out is unjust. Leaving anybody out of the gains is also likely to lead to fewer new tools being created and put into use, which means lower productivity gains, which means a lower level for the economy as a whole, which means lower standards of living.
    • mfoy_ 9y ago
      I guess the problem comes when the tool is so good that it no longer requires the worker who uses it, i.e. automation. When all jobs that can be automated are automated, where are we left? As a society? Do we argue against automation because it destroys jobs? Then you're into government-paying-people-to-dig-holes-then-refill-them land. Do we just let the majority languish in poverty while the owners of the capital continuously concentrate their wealth? That's no way to build a future, or a healthy nation. Do we say everyone gets "mincome"? That's pretty-darn socialist, which is something many Americans have... extremely strong feelings about.
      • AnimalMuppet 9y ago
        I think of this differently. I think in terms of "spending" people instead of "employing" them. As a society, you've only got so many people. What are you going to spend them on? Well, traditionally, the answer was that you had to spend a lot of them on your food supply. But we found that, with better tools, we could spend only something like 3% of our people on food supply, and the rest could do something else. Some of them had to make the tools that the farmers used. Some could make a whole range of other new things. And we - the whole society - got richer as a result. Now we're finding that, with newer tools, we don't have to spend as many people in factories. We can do something else with them. The whole society can become richer as a result - if we can find something useful for them to do. I'm optimistic, but I must admit that I see the problems. We seem to be losing a lot of people into despair and poverty and feelings of uselessness. (I don't know if the same was true at the start of the industrial revolution, so I don't know if this is something to kind of expect at a transition, or whether this is something new.) I see that the income distribution is way out of whack. (I'm pretty sure that was true at the start of the industrial revolution, and it got corrected, but it took unionisation to do it.) Do we spend most of our people on space exploration? On better medical care? On herding robots? I don't know. But I'm optimistic that there will be something useful for them to do, which will improve our society as a whole. I don't know what it will be, though. (If you wish to maintain pessimism, there's your opening...)
  • rhino369 9y ago
    I don't think it's entitlement. But it's naive to think they would would a significant portion of productivity gains caused by other factors.
  • rossdavidh 9y ago
    Let's put it another way: why shouldn't workers try to hold back and/or destroy any sign of automation? Why should they not vandalize any attempt at using technology to make things more efficient? There are way more of them than there are innovators or CEO's, either one. The reason is, the same reason that everything else in society works: we all have a stake in this, because if society is better off, we are all better off. But, what if when more is produced, I don't get more, but now you have more to push housing prices in my neighborhood out of my reach? Society, and especially free-markets, rely on widespread support. A society of 50% thieves will collapse; a society of 10% thieves will probably not do much better. You need broad consensus to maintain the conditions necessary for a free market and innovation. You don't get that broad consensus, if all the gains in productivity go to the top.
  • SilasX 9y ago
    This is a good point and shouldn't be downvoted. (I assume that was for tone?) We shouldn't expect that a productivity improvement purely due to capital should result in higher real worker compensation [1]. If the lawnomatic can mow one lawn per hour, and an upgrade permits it to mow two lawns per hour, then the labor of pressing its activation button isn't somehow more valuable. [1] Technically, it should result in employers bidding more for workers, but in a way that's far less than proportional to the total gain in output.
    • s73v3r_ 9y ago
      But why should management then expect to see increases in revenues? If labor is not going to see increased wages, then why are they now doing more work?
      • SilasX 9y ago
        >But why should management then expect to see increases in revenues? There's no universal answer, but in the canonical example of better machines, then part of the higher productivity is likely due to the judgment in recognizing where machines could be deployed, which is managerial labor. >If labor is not going to see increased wages, then why are they now doing more work? I'm not sure what you mean, but I was just explaining why we shouldn't expect higher total output to mean proportionally higher wages; it all depends on the cause of the productivity. If the worker is pushing the same buttons and the machine is doing more, wages should not be expected to increase and there's no mystery. If the productivity is from workers becoming more versatile and able to handle a bigger variety of situations with the same capital, then we should expect higher wages without a higher return to capital.
        • s73v3r_ 9y ago
          "There's no universal answer, but in the canonical example of better machines, then part of the higher productivity is likely due to the judgment in recognizing where machines could be deployed, which is managerial labor." And using those machines was labor labor. "but I was just explaining why we shouldn't expect higher total output to mean proportionally higher wages" But why not? "If the worker is pushing the same buttons and the machine is doing more, wages should not be expected to increase and there's no mystery." Why not? The company is doing better; why shouldn't those who contributed, including the workers who made the widgets, share in that? "If the productivity is from workers becoming more versatile and able to handle a bigger variety of situations with the same capital, then we should expect higher wages without a higher return to capital." That is almost never seen.
  • s73v3r_ 9y ago
    To me, the attitude reeking of entitlement is that you shouldn't have to pay more for a worker who is providing more value for your business. And regardless, someone who is more productive is providing more value. Don't believe so? Simple test: Are you now bringing in more revenue, producing more product, or reducing the cost of your product? Then more value has been produced. The alternative, which sadly has been taken all too often, is that management pockets that difference.
  • eecc 9y ago
    Why are you so hostile to human beings? Employees are not merely selling time (actually that’s the most precious a living person has) but their ability to turn it - through the mastering of technology - into valuable goods. That they’re not entitled to a fair share, but just to whatever was agreed back in the day, without demonstrable acts of servile devotion, reeks of... dunno, feudalism?
    • lotsofpulp 9y ago
      Prices are useful to indicate whether or not supply should be increased or decreased. Decreasing prices (wages in this conversation) indicate that people should be looking to sell their product (time and effort) to another market or buyer. Rather than force buyers to pay more than what the market says, the better option would be for societies to provide opportunities for people to re-tool and become more valuable again, for where this sufficient demand.
  • egypturnash 9y ago
    So let's say that you and I go into business together making artificial flowers. Initially we are both sewing them entirely by hand and selling them. We're barely making enough to scrape by, working twelve hours a day. It kind of sucks. One day, I win a thousand bucks in the lottery and buy a couple of sewing machines for us to use. We can now make, oh, fifty flowers in the time it took us to make one. Let's assume that the demand for artificial flowers is far higher than we can fulfill. We could work as many hours as we used to and start selling fifty times as many flowers. But instead we work a little less and sell thirty times as many. We're still we're making a lot more money than we used to. Now. Since I bought the sewing machines with my own money, clearly I should be the one reaping all of the benefits of this new order. I'll take all the money and pay you exactly the same amount of money you were making when we were both sewing flowers by hand. So I'm getting about fifty-nine times as much as you are. "Hey, Egypt," you say. "Thanks to those sewing machines, I'm creating a lot more value than I used to. Maybe I should be getting, I dunno, twice what I used to get? Or a hell of a lot more?" And I sneer down at you from atop my golden toilet. "Your attitude reeks of entitlement," I say. "Get back to your sewing machine, Thenews." Three weeks later, you're fired, and replaced by a guy living in a tent under the Interstate who'll make flowers for half of what you were paying. It's my sewing machines, after all.
    • sigstoat 9y ago
      > It's my sewing machines, after all. that you've also got to maintain, insure, save funds to replace at the end of their life, etc. all while not earning 7% on the original $1000 by letting it sit in the stock market long term.
      • egypturnash 9y ago
        Yes! Clearly these considerations are worth the entirety of the profits generated by Flowr, Inc's new equipment.
    • skookumchuck 9y ago
      > It's my sewing machines, after all. It's also your idea, your implementation, your risk. You made the operation more productive, and that is worth money. It's perfectly fair, after all, your partner can also buy a sewing machine and start his own business competing with you. The fact that he does not is indicative that you provided the value, not him.
  • specialist 9y ago
    You're overthinking this. It's just a coincidence that corporate profits skyrocketed while wages stagnated?
• crdoconnor 9y ago
  Technology makes a convenient scapegoat though.
  • mfoy_ 9y ago
    Especially because technology drives automation, and automation pushes us ever closer to a very difficult question: What, exactly, will happen when all jobs which can be automated, are automated?
    • kruhft 9y ago
      The automators are automated.
      • ph0rque 9y ago
        But who will automate the automator automators?
        • murph-almighty 9y ago
          Alan Moore scribbles furiously
    • rexpop 9y ago
      For a fun, fairly thorough look at four possible answers to this question, check out this book on Goodreads: "Four Futures: Life After Capitalism" https://www.goodreads.com/book/show/22551901-four-futures https://www.goodreads.com/book/show/22551901-four-futures
    • daanlo 9y ago
      Everyone will work in new jobs that are not yet automated. It is the fundamental of capitalism that we will find new ways to earn money (because we have to). I have no data on this, but I wouldn't be surprised if more than 50% of the jobs that existed in 1960 are automated today. That doens't mean 50% of the workforce are unemployed today.
• trophycase 9y ago
  I wonder how much of this stagnation can be attributed to fewer people performing "real work"... that is producing something that actually adds value. Just thinking of the sheer number of people and resources used in advertising, movie CGI, useless chat apps, etc. that are basically a net negative to real economic output, it makes me think that maybe these people are the ones getting paid with the productivity gains of those who produce real output. Not trying to put anyone down here, it's just I can't see a lot of economic benefit in a team of 10 engineers modeling the hair of the next Assassin's Creed character... and where do you think this money comes from?
  • mfoy_ 9y ago
    If by "real work" you mean force time distance, then suuuure. The entire software industry does very little "real work", since it doesn't take very much force to move the keys on a keyboard only a little bit down.
    • trophycase 9y ago
      By real work I mean the process of actual wealth creation. I'm arguing that certain types of work are net positive wealth creation while others are net negative, meaning that more useful resources are consumed in the process of creating that good/service than the benefit to the system that this good/service provides. Take my Assassin's Creed example. Consider all the electricity used to run their computers, the food and shelter needed for engineers and marketers, the raw materials needed for game parts and distribution. These resources are essentially burned or are outflows of the system, while providing very little inflow (that is directly or indirectly contributing to the creation of real wealth). The result is a net outflow of real wealth of the system. As more and more people shift to such jobs, productivity gains in "net inflow" work will be partially distributed to those working in "net outflow" jobs. I'm also not arguing that all software jobs are net outflow. Something like Google for example, could be argued as a net inflow, because fast information retrieval and distribution can greatly improve the overall efficiencies of the economic system.
      • 9y ago
• CWuestefeld 9y ago
  There was just a post on a related topic, technological unemployment, on SlateStarCodex. Quoting the conclusion below: Here are some tentative conclusions: 1. Technological unemployment is not happening right now, at least not more so than previous eras. The official statistics are confusing, but they show no signs of increases in this phenomenon. (70% confidence) 2. On the other hand, there are signs of technological underemployment – robots taking middle-skill jobs and then pushing people into other jobs. Although some people will be “pushed” into higher-skill jobs, many will be pushed into lower-skill jobs. This seems to be what happened to the manufacturing industry recently. (70% confidence) 3. This sort of thing has been happening for centuries and in theory everyone should eventually adjust, but there are some signs that they aren’t. This may have as much to do with changes to the educational, political, and economic system as with the nature of robots per se. (60% confidence) 4. Economists are genuinely divided on how this is going to end up, and whether this will just be a temporary blip while people develop new skills, or the new normal. (~100% confidence) 5. Technology seems poised to disrupt lots of new industries very soon, and could replace humans entirely sometime within the next hundred years. (???) This is a very depressing conclusion. If technology didn’t cause problems, that would be great. If technology made lots of people unemployed, that would be hard to miss, and the government might eventually be willing to subsidize something like a universal basic income. But we won’t get that. We’ll just get people being pushed into worse and worse jobs, in a way that does not inspire widespread sympathy or collective action. The prospect of educational, social, or political intervention remains murky. http://slatestarcodex.com/2018/02/19/technological-unemployment-much-more-than-you-wanted-to-know/ http://slatestarcodex.com/2018/02/19/technological-unemploym...
  • passthefist 9y ago
    > 2. On the other hand, there are signs of technological underemployment – robots taking middle-skill jobs and then pushing people into other jobs. Although some people will be “pushed” into higher-skill jobs, many will be pushed into lower-skill jobs. This seems to be what happened to the manufacturing industry recently. (70% confidence) There's a couple research papers from the NBER that I think show this has been happening since the early 90's. http://www.nber.org/papers/w18334.pdf http://www.nber.org/papers/w18334.pdf The graphs of for the jobless recoveries are particularly telling. One thing the authors suggest is that before the 90's after a recession we recovered the jobs that were lost due to the slowdown, but after the 90's companies could outsource or automate during the recession to deal with the economic pressures, so when the economy recovered those jobs weren't around to come back to. http://www.nber.org/papers/w18901.pdf http://www.nber.org/papers/w18901.pdf From the conclusion > In particular, we have argued that after two decades of growth in the demand for occupations high in cognitive tasks, the US economy reversed and experienced a decline in the demand for such skills. The demand for cognitive tasks was to a large extent the motor of the US labor market prior to 2000. Once this motor reversed, the employment rate in the US economy started to contract. As we have emphasized, while this demand for cognitive tasks directly effects mainly high skilled workers, we have provided evidence that it has indirectly affected lower skill workers by pushing them out of jobs that have been taken up by higher skilled worker displaced from cognitive occupations. This has resulted in high growth in employment in low skilled manual jobs with declining wages in those occupations, and has pushed many low skill individual's out of the labor market. Moreover, the early 90's are about the same time we see a rise in disability benefits, especially for children. There's a big increase that starts in the early 90's. Some of this is probably from the welfare reform that happened around that time, but http://apps.npr.org/unfit-for-work/ http://apps.npr.org/unfit-for-work/ has some pretty interesting insights and that was written in 2011. They end the article with > Somewhere around 30 years ago, the economy started changing in some fundamental ways. There are now millions of Americans who do not have the skills or education to make it in this country. And as you mentioned, we don't have any programs to bridge that gap between low and high skilled jobs. It used to be that you could work your way up, training on the job and gaining new skills. Instead we turn to formal training or education, but those have capital costs that create a barrier of entry into the higher paid labor market. If you're already working one or more low income jobs then it's not just the monetary but also the time capital required to retrain. Either you spend most of your time working and training/studying or you take the opportunity cost of quitting your job in the hopes of improving your skills to find a new one. It seems many are taking a third route of going to a doctor and getting on disability benefits, and while I can't find it I read an article a while ago where one of the doctors straight up said that they include education in the decision, seeing some people as unemployable with their level of education. I think doctors making that judgement call is it's own discussion, but just furthers the point. Then you've got companies like Dollar General betting on America having a "permanent underclass", their own words: https://www.google.com/search?q=dollar+general+permanent+underclass https://www.google.com/search?q=dollar+general+permanent+und... I think we're only just realizing this now, but I pretty much agree with your sentiment that we're not ready to handle this. Even if we could fix the issues with cheap foreign and domestic labor that's not going to stop automation and IMO we're already in the post-automation future, just with globalization providing a similar effect. > might eventually be willing to subsidize something like a universal basic income. I'm kinda interested if there's any studies that use disability benefits as a kind of natural experiment for basic income since in a way it's already a form of UBI. There's some obvious differences, but one of the assumptions of SSDI is that you're incapable of working and that's similar to one of the criticisms of UBI that it would incentivize people not to work, which could have negative social consequences. I'm sure there's something we could learn from looking at people on disability benefits about that.
• padobson 9y ago
  At the opposite end of the spectrum – which we call ‘strong linkage’ – it’s possible that productivity growth translates fully into increases in typical workers’ pay, but even as productivity growth has been acting to raise pay, other factors (orthogonal to productivity) have been acting to reduce it. At the same time, non-purely technological hypotheses for rising mean-median inequality include the race between education and technology (Goldin and Katz 2007), declining unionisation (Freeman et al. 2016), globalisation (Autor et al. 2013), immigration (Borjas 2003), and the ‘superstar effect’ (Rosen 1981, Gabaix et al. 2016). Non-technological hypotheses for the falling labour share include labour market institutions (Levy and Temin 2007, Mishel and Bivens 2015), market structure and monopoly power (Autor et al. 2017, Barkai 2017), capital accumulation (Piketty 2014, Piketty and Zucman 2014), and the productivity slowdown itself (Grossman et al. 2017). All of the non-technological reasons, to me, boil down to globalization. I'd love to see the productivity-wage divergence chart in China and other developing countries. I wouldn't be surprised if the divergence is inverted in those places that have seen unprecedented wage growth over the last forty years. I guess what I'm saying is that I don't think productivity and wages have diverged as much as people think, it's just that a national analysis is insufficient in a global labor market.
  • malvosenior 9y ago
    I would add women entering the workforce en bulk, essentially doubling it. Between that and globalization it would seem the supply/demand ratio significantly changed to have downward pressure on salaries.
    • EliRivers 9y ago
      All those women spend their earnings, increasing demand. Essentially doubling it?
      • zaroth 9y ago
        A two-parent household isn't going to double its consumption of everything if both parents start working. First, because wages will be depressed from the new labor supply, the total income of the household doesn't double. Second because their tax rate will increase. Third because many things we consume in fixed units with little control over the total cost, like "health insurance". But they will increase their consumption of some things, particularly when it comes to the direct cost of working, so the family may spend more on things like transportation, clothing, child care, home care & maintenance services, food preparation, grocery delivery, etc.
• losvedir 9y ago
  This touches on something I've been thinking about but don't have a word to look into further; maybe someone can help me out. I would think that the productivity of a worker (as defined here) would put an upper bound on wages, but not that wages would necessarily rise to that. That would depend on supply and demand of labor. The concept I've been toying with is this: suppose there are 100 software jobs and 90 software developers. In that regime, the wages will rise to the value created by the software developers, since there will be a bidding war among the companies that need them, and they'll be willing to pay up to what the developer is worth to them. On the other hand, suppose there are 100 software jobs and 110 software developers. Now the wages will fall to the minimum amount the developers will take, based on cost of living or switching careers or whatever, since companies will now offer as little as they can get away with. IOW, I think that there are two discontinuous "wage regimes" depending on if there are more workers than jobs, or more jobs than workers. Is there a term or concept for this that I can read about more?
  • daanlo 9y ago
    You should read the book freakonomics. It has a chapter about real estate prices that explains the concept very well.
  • babaganoosh89 9y ago
    In your example there's not really 100 software jobs and 90 software engineers, but instead a supply curve and demand curve. If the price of engineers went down, companies would love to hire more. While if the price went up, more students would start learning comp sci, self-employed developers would look for a job instead, etc.
  • dredmorbius 9y ago
    You've pretty much precisely nailed this. If you go to the classical economists (Smith, Ricardo, Mill, Marx), you'll find that they tend to discuss both specific classes of goods, and specific factors to the wages of labour. Of the first, from Smith, generally: commodities, wages, rents, interest, assets (gold and silver), capital (stock), and public goods ("expenses of the sovereign"). These are somewhat scattered about the book, the first six largely in Books 1 & 2, and Book 5 devoted solely to the latter. I'll turn it over to Smith for the factors in compensation of labour, as he's uncharacteristically direct and brief: "The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counterbalance a great one in others: first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and, fifthly, the probability or improbability of success in them." https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/Chapter_10 https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/... (An expansion of each of the five elements follows.) From Ricardo we get the Law of Rent and Iron Law of Wages (Lasalle, Marx, and Engles also discuss this). The first notes that for any productive input whose quantity is fixed, the price will rise to capture all of the generated value. The second notes that wages fall to or below the level of bare subsistence. The second factor is most distinct for nondifferentiated labour, that is, unskilled, and in particular, in a stagnant or declining economy. Smith describes the circumstances of the latter in terrifying detail in Book 1 Chapter 8, which I strongly recommend reading in full, though the relevant detail begins at: "But it would be otherwise in a country where the funds destined for the maintenance of labour were sensibly decaying..." https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/Chapter_8 https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/... Smith, et al, are classical economists, and their observations were given mathematical rigour and explanation by the marginalists. Effectively, goods producing rents have zero price elasticity, public goods have zero marginal cost, and in the case of wages, there are generally distinct short-term and long-term cost components, a phenomenon which can produce a backwards-bending supply curve. That is, if you reduce a wage rate below subsistence, on a time-worked or piece-work basis, you will get more productivity as labourers work more hours to simply meet their minimum survival requirements. This comes, however, at the cost of long-term capacity: raising of families, rest and recuperation, education, and the like. Much of the conflict of modern economic life, from a worker-renter's point of view, can be explained by the squeeze of falling wages against rising rents, via numerous mechanisms. Your observation on who has rightful claim to the surplus value generated by labour (and the role of increased productivity in setting an upper bound to the possible wage component) is the matter explored by Thorstein Veblen, though I need to revisit just exactly where.
• wu-ikkyu 9y ago
  So the basic question is: why are wages stagnating in the face of increased productivity? What is wrong with a simple, non-technical answer like: because the people at the top don't want to share?
  • kd0amg 9y ago
    Is there evidence that this explanation is more true now than in the past? It's probably worth at least examining whether they have become more capable of acting out that preference.
    • wu-ikkyu 9y ago
      Sure, how about the massive wave of increasing power and centralization at the heart of where money/wages originate: the finance sector. As well as declining union participation rates
    • cfmcdonald 9y ago
      I don't have quantitative evidence, but I do feel there was a cultural shift in the 1970s-80s in the corporate world. "shareholder value" became the dominant view of what companies were for (rather than say, social value), activities that most corporate leaders would have been ashamed of in the past - extremely high compensation relative to their employees (100x or more), layoffs to cut costs even when profitable, etc. - became acceptable or even sources of pride. I believe it may be related to a broader cultural shift towards individualism (see, e.g. http://www.hup.harvard.edu/catalog.php?isbn=9780674064362 http://www.hup.harvard.edu/catalog.php?isbn=9780674064362)
    • PeterisP 9y ago
      "they have become more capable of acting out that preference" is exactly the key point of such discussion - with increased automation, companies need more capital and less labor. This means that the labor (ordinary workers) gets less leverage and capital (owners/managers) get more leverage, i.e., increased ability to ensure that they get a larger share of the pie. The ancient dictator needed his slaves to work to build his pyramids. The feudal lord needed his serfs to work his fields. They needed to ensure that they are kept from rebelling but also can live well enough so that their numbers (and thus the lords' power) increase. The industrial capitalist needs to keep the working class somewhat satisfied (bread and circuses?) - they are absolutely vital to his needs, and if they self-organize and start striking, he loses. However, in the far future when everything is automated, whoever controls the means of production doesn't need the underclass in any way whatsoever. They may care about their community, but letting the underclass to starve or machinegunning them isn't an impossible "solution" anymore. Neither the slaver, nor the feudal lord, nor the industrialist could afford to eliminate everyone who's discontent, even if they physically could do so after crushing a rebellion - they needed their labor. In the future, that won't be the case; the only thing preventing a ruling regime having their robot army slaughter the unneccessariat is if they choose not to do so and choose to share the wealth instead.
• beefman 9y ago
  Original source: https://voxeu.org/article/link-between-us-pay-and-productivity https://voxeu.org/article/link-between-us-pay-and-productivi...
• moorhosj 9y ago
  This paper finds that the change in wage distribution in the US over the past 40 years has been more similar to China than France. This implies policy may be playing a large factor. How many times has the highest tax rate been cut in the past 40 years? How many states have enacted right-to-work laws? How have special tax rates for carried interest, long term capitals gains and dividends impacted business decisions? https://www.economist.com/news/finance-and-economics/21717102-why-chinese-citizens-seem-more-tolerant-rising-inequality-westerners-new https://www.economist.com/news/finance-and-economics/2171710... France and Germany have works council that gives labor a voice in business decisions (a seat on the board). Maybe the solution is as easy as giving workers a voice.
  • microcolonel 9y ago
    > How many times has the highest tax rate been cut in the past 40 years. How few times has the lowest tax rate been cut?
    • moorhosj 9y ago
      Could you expand on your point? I'm not really following the answering of one question with another question.
    • lazerpants 9y ago
      You can't cut from 0%, unless you're talking about expanding earned income tax credits or something.
      • moorhosj 9y ago
        Even so, the problem outlined isn't after-tax earnings, it is wages. Lower tax rates don't solve that fundamental economic issue. In the past twelve months, the unemployment rate has fallen, from 4.8% to 4.1%. Meanwhile, the laborforce participation rate has also fallen, from 62.9% to 62.7%. This is not easily explained by traditional labor economics. It seems like there is a broken link somewhere in the chain. Why haven't we seen wages rise with the falling unemployment rate? Why aren't discouraged workers moving back into a labor market with 4.1% unemployment? data source: https://www.bls.gov/news.release/empsit.a.htm https://www.bls.gov/news.release/empsit.a.htm
• taw-an 9y ago
  There is no competition for wages, only a cartel effect. It's pretty simple.
• arca_vorago 9y ago
  Because it was always about class warfare, and as W Buffett said, the rich are winning. Just how they promised us the industrial revolution would, but instead the rich gobbled up all the profits while starting the workers which led to the Era of robber barons. Anyone who thinks the information or automation revolution isn't going to result in the same thing unless we change fundamental business practice is in for a rough surprise.
  • jeffreyrogers 9y ago
    Is this true? I think the average worker is much better off now than in the past. It's not that long ago that many people in the US didn't have electricity. I think what's happening is as we get richer our definition of what's necessary to have a middle class life gets continually revised upwards. Most people have a car, several electronic devices, eat out relatively often, etc. What used to be a luxury or aspirational becomes commonplace. That's not to say there aren't problems, but exaggerating how bad things are makes any argument to fix them less credible.
    • toomuchtodo 9y ago
      The average worker is one $1000 calamity away from financial ruin. The average worker is not better off, and your view about how “most people” live regarding vehicle ownership, electronics, and eating out is out of line with reality for the lower and middle class.
      • jeffreyrogers 9y ago
        95% of American households have a car. So I'm not sure I'm that wrong. Maybe if you live in New York or Boston that's not true, but in most of the country you need a car to get around. I don't know too many lower class people, but I do know a decent amount of lower-middle class people (service industry jobs, no college degree). They all have cars, newish cell phones, and do go out to eat and go to bars. They don't save much money as far as I can tell, so they probably are $1000 away from financial ruin though.
• Animats 9y ago
  That's an awful article. The author is trying to infer too much from data that summarizes the entire economy. There's far more detailed data available from the Bureau of Labor Statistics. You can look at technology and productivity by industry sector, which is more useful. This guy was Secretary of the Treasury and a professor of economics at Harvard. He has to know better. This looks like starting from a desired result and working backwards to support that argument.
• tomc1985 9y ago
  Duh. The real answer is greed.
• jakecrouch 9y ago
  Wealth inequality is the result of a debt bubble that's been growing for several decades, not technology. High household debt to GDP and wealth inequality probably coincide today for the same reason they coincided during the Great Depression. The ways these debts have to be restructured or dealt with distort the economy, in a way that tends to massively benefit some while hurting everyone else. If you own stock in or work for a health insurance company, the last decade has been fantastic. On the other hand, the government will soon find that it's having trouble keeping up with the debt from its healthcare programs. If you started a company in Silicon Valley, you benefitted from enormous pools of VC money that might have been in treasury bonds if the Federal Reserve hadn't already been buying trillions of them. If we look back historically, wealth inequality began to normalize by the 1950s only after the US's debt was erased. The story that runaway technology is creating massive inequality is unlikely be true in a country where GDP growth is only 2%.
• novalis78 9y ago
  What about the disconnecting of currency from the gold standard (1971/1973). Productivity gains that rippled through the economy based on a capped unit of accounting were now more likely to end up in the banking vaults of the institutions overseeing the money issuance and those close to the source - while the rest of the workforce sat on inflating paper.
  • throwaway1748 9y ago
    Not sure why this comment wasn't upvoted higher. Inflation has effectively been a slow-moving tax increase to the middle class, as tax brackets don't change with the decreasing value of the US dollar. A $100,000 salary in 2018 was equivalent to a $65,000 salary in 2000, meaning much more of one's 2018 income is pushed into the higher 25% bracket rather than the lower 15% bracket.
    • novalis78 9y ago
      Also coincides nicely with the demand on families to go from one partner working and able to sustain a family of 4-5 (lots more kids in the 50s/60s) to both parents having to work and smaller family size over the past 50 years.
• darepublic 9y ago
  I first read the comments page on nakedcapitalism.com before browsing these comments. It is interesting that these articles are discussed on HN as a proxy for using the comment section of the actual site, but I guess that is the norm these days. I would kind of expect the discussion at the actual site to be more informed as only more dedicated people to the topic would have membership at the smaller site. But I feel like, more or less, the discussion here mirrors the one on nakedcapitalism. It would be interesting to bucket all the arguments that are more or less the same. I see the following: (in answer to why have wages stagnated) * 'its because the rich are greedy assholes who have corrupted government' * its due to globalization or cannot be explained without factoring this in * its because of some complex unorthodox economic theory (insert here) I can tolerate the comments on HN more than on reddit where I can only anticipate the ratio would tilt so heavily in favour of just emotional outbursts against rich greedy assholes that get upvoted by online pitchforked mobs ready for the revolution. These main lines of thought spawn mini threads that swirl like like pools of attention suckage in a steady stream of water. What I think would be interesting would be for some kind of automatic moderation that parses out the main arguments, prevents de-railments, crushes duplication, and forces the true competing arguments to face each other head on in the rational arena.
• digitalmaster 9y ago
  Why are we still doing this in 2018! The jury isn't out on this one - the voodoo tricke-down economic experiment is over and the results are in - it is nothing more than a sensationalized way for the rich to piss on the poor. If you don't believe me try this: Go on google.com - type "rich piss on the poor" - the click "I'm feeling lucky". I rest my case lol A more constructive debate should focus on how to first mitigate, reverse and then prevent.