21 ms·

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 pl

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
    - bomb199 9y ago
      I'm not sure how these are a mystery. Wages aren't going up because there is nothing forcing them to go up. The upper class just takes their rents and insists paying more wages would tank the economy. Participation is going down because there's little reason to seek employment if you know the employer is just attempting to shaft you. You produce $40/hr, but they'll pay you $8/hr. You can't negotiate, they'll just find someone who is desperate.
      - moorhosj 9y ago
        I largely agree with you, it was more of a question for those who believe labor economics should act like traditional market economics. You have pointed out the key difference as there isn't perfect information in labor economics like there is in market economics.
    - lazerpants 9y ago
      I think the decline in the labor rate isn't as much of a mystery as some people think. Baby boomers are definitely retiring. For the last 10 years we've had two demographic bubbles (baby boomers and millenials) in the job market at the same time, and now that is shifting. Obviously there is more at play when you look at certain demographics in certain regions, but a lot of this can be explained by the number of older people who are choosing to retire or being forced to retire by medical issues. I believe HN misses this issue sometimes because on average tech workers are pretty young. However, anecdotally, in my last office (in the same organization) we had a team of 10. 5 of my coworkers there were over 60 years old... Those people are going to retire soon and hopefully live good long lives outside of the labor pool.
      - moorhosj 9y ago
        Even more proof that wages should be rising as the labor market thins out and the economy grows.
  - digitaltrees 9y ago
    Looking at the federal income tax rate is only a small part of the picture. There are a lot of other taxes everyone pays, payroll taxes / fica, sales taxes, etc.; most of which are highly regressive. You could cut those for lower income brackets. When you include these tax categories you will also note that there was a shift to these regressive taxes at the same time the highest income tax rates were cut. And to further reinforce this feedback loop there was also a move to reclassify income to long term capital gains profit which is taxed even lower than the highest income tax. All of these policy shifts combined to create greater wealth inequality, and wage stagnation.
- da_chicken 9y ago
  You have to look for cuts to regressive taxes. California, New Jersey, Florida, and Missouri have all recently reduced sales taxes. Tobacco and gasoline taxes have generally increased, however.
enraged_camel 9y ago
My completely unscientific theory is that all the money that would otherwise have been allocated to wage increases has been eaten up by skyrocketing healthcare costs. I haven't actually looked at whether this is true though.
- simonsarris 9y ago
  You're generally right. Total comp has increased, not stagnated, but only because employers have shifted compensation from wages to benefits (like healthcare). Companies don't pay payroll taxes on those, so I assume they like this arrangement, even though it causes all sorts of problems when you couple job + healthcare. Healthcare is the new company car. Total compensation (including non-wage benefits): http://research.stlouisfed.org/fred2/series/RCPHBS http://research.stlouisfed.org/fred2/series/RCPHBS Cost index (attempts to control for composition changes): http://research.stlouisfed.org/fred2/series/ECICOM http://research.stlouisfed.org/fred2/series/ECICOM
  - moorhosj 9y ago
    Meanwhile, corporate profits as % of GDP are historically high: https://fred.stlouisfed.org/graph/?g=fPLQ https://fred.stlouisfed.org/graph/?g=fPLQ
    - tryptophan 9y ago
      This can explained by the fact that US companies are doing an increasing share of their business in non-US countries.
      - moorhosj 9y ago
        Is the inverse of this not true? Are non-US companies doing more of their business in the US?
- entee 9y ago
  There's plenty of evidence to suggest it's a contributor: https://www.bloomberg.com/news/articles/2017-09-19/rising-health-insurance-costs-blunt-employees-paycheck-gains https://www.bloomberg.com/news/articles/2017-09-19/rising-he... Though given the extraordinary profitability of companies right now, surely not the only factor. Some of those profits could be redistributed to workers. Not sure how to do that without potentially causing damage though.
specialist 9y ago
Tax burden shifted from Capital to Labor. Corporate profits increased, wages stagnated. Pretty simple, really. And yet. While mega corps (FANG et al) horde cash, and management & bankders gets their cheddar, Joe Average investors are getting screwed, and no one's freaking out.
- staplers 9y ago
  Distract from the class war by focusing on immigrants, terrorism, russia investigation, war on drugs, etc etc
  - BookmarkSaver 9y ago
    I really don't see how you can include the Russia investigation on that list. The rest is raw fear-mongering.
    - TaylorAlexander 9y ago
      The Russia stuff has always seemed like fear mongering to me. It’s a big scary enemy messing with our political system. But is what’s happening actually new? And is what’s happening as significant as the news makes it out to be? Or is it another distraction with all the rest?
      - adventured 9y ago
        China previously bought its way into several of our Presidential elections. There was a small fraction of media obsession with that story compared to Russia now, for obvious reasons. 2007 LA Times: "Dishwashers, waiters and others whose jobs and dilapidated home addresses seem to make them unpromising targets for political fundraisers are pouring $1,000 and $2,000 contributions into Clinton's campaign treasury. In April, a single fundraiser in an area long known for its gritty urban poverty yielded a whopping $380,000. When Sen. John F. Kerry (D-Mass.) ran for president in 2004, he received $24,000 from Chinatown." http://www.latimes.com/la-na-donors19oct19-story.html http://www.latimes.com/la-na-donors19oct19-story.html https://en.wikipedia.org/wiki/1996_United_States_campaign_finance_controversy https://en.wikipedia.org/wiki/1996_United_States_campaign_fi... https://www.nationalreview.com/2017/07/chinese-illegally-donated-bill-clinton-reelection-campaign-media-downplayed/ https://www.nationalreview.com/2017/07/chinese-illegally-don...
skookumchuck 9y ago
> Maybe the solution is as easy as giving workers a voice. Maybe you should give the guy you paid to paint your garage a voice in your management of your home.
- skosch 9y ago
  On the face of it, your reductio ad absurdum is perfectly reasonable. Employees do their job, get their money, end of story. Right? In continental Europe, nobody expects it to work like that. It's a different mindset. If you work in a large firm, the works council has a say (to some degree) in management decisions. It's not always perfect – politics are everywhere – but it is completely normal and expected by bosses and workers alike that employment is a relationship, not a transaction. And for the most part, it seems to be working. To someone who grew up in that culture, your wild-west thinking seems a bit, well, primitive? Or uncivilized?
  - skookumchuck 9y ago
    > primitive? uncivilized? Nice dismissal with the logical fallacy of appeal to emotion!
  - adventured 9y ago
    > In continental Europe, nobody expects it to work like that. ... To someone who grew up in that culture, your wild-west thinking seems a bit, well, primitive? Or uncivilized? One should challenge that setup by asking the question: has contintental Europe's policies resulted in high wages? France has far lower wages than the US, with 1/4 to 1/5 the wage growth rate of the US over the last two decades. Germany, Britain, Spain, Portugal, Greece, Italy, Austria, Belgium, all have considerably lower wages than the US. Continental Europe also includes dozens of nations that are dramatically poorer than the US, both in terms of median income and median household net worth. Wouldn't it be more primitive or uncivilized to be using the French approach, since it has resulted in dramatically lower wage growth for decades now? Wage growth in France averaged 0.5% annually the prior two decades. In the US, 2.5% wage growth is considered very slow, with 3.5% to 4% being average in the 1999-2009 time frame. If their system works so well, where's the wage growth (and we're talking about the last 20 years, not a blip of time)?
galieos_ghost 9y ago
It's supply and demand 101. We've allowed 15-20 million illegal immigrants into our country who have no labor protection under federal law because they don't exist. End result is depressed wages up the chain.
neilwilson 9y ago
Policy determines that there can be only 19 jobs for every 20 people. That's what 'full employment' means under neoliberalism. How can work councils help that. Nothing will change until the Beveridge condition is restored - more jobs than people that want them.

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
  - bomb199 9y ago
    I'm not sure how these are a mystery. Wages aren't going up because there is nothing forcing them to go up. The upper class just takes their rents and insists paying more wages would tank the economy. Participation is going down because there's little reason to seek employment if you know the employer is just attempting to shaft you. You produce $40/hr, but they'll pay you $8/hr. You can't negotiate, they'll just find someone who is desperate.
    - moorhosj 9y ago
      I largely agree with you, it was more of a question for those who believe labor economics should act like traditional market economics. You have pointed out the key difference as there isn't perfect information in labor economics like there is in market economics.
  - lazerpants 9y ago
    I think the decline in the labor rate isn't as much of a mystery as some people think. Baby boomers are definitely retiring. For the last 10 years we've had two demographic bubbles (baby boomers and millenials) in the job market at the same time, and now that is shifting. Obviously there is more at play when you look at certain demographics in certain regions, but a lot of this can be explained by the number of older people who are choosing to retire or being forced to retire by medical issues. I believe HN misses this issue sometimes because on average tech workers are pretty young. However, anecdotally, in my last office (in the same organization) we had a team of 10. 5 of my coworkers there were over 60 years old... Those people are going to retire soon and hopefully live good long lives outside of the labor pool.
    - moorhosj 9y ago
      Even more proof that wages should be rising as the labor market thins out and the economy grows.
- digitaltrees 9y ago
  Looking at the federal income tax rate is only a small part of the picture. There are a lot of other taxes everyone pays, payroll taxes / fica, sales taxes, etc.; most of which are highly regressive. You could cut those for lower income brackets. When you include these tax categories you will also note that there was a shift to these regressive taxes at the same time the highest income tax rates were cut. And to further reinforce this feedback loop there was also a move to reclassify income to long term capital gains profit which is taxed even lower than the highest income tax. All of these policy shifts combined to create greater wealth inequality, and wage stagnation.
da_chicken 9y ago
You have to look for cuts to regressive taxes. California, New Jersey, Florida, and Missouri have all recently reduced sales taxes. Tobacco and gasoline taxes have generally increased, however.

enraged_camel 9y ago

My completely unscientific theory is that all the money that would otherwise have been allocated to wage increases has been eaten up by skyrocketing healthcare costs. I haven't actually looked at whether this is true though.

simonsarris 9y ago
You're generally right. Total comp has increased, not stagnated, but only because employers have shifted compensation from wages to benefits (like healthcare). Companies don't pay payroll taxes on those, so I assume they like this arrangement, even though it causes all sorts of problems when you couple job + healthcare. Healthcare is the new company car. Total compensation (including non-wage benefits): http://research.stlouisfed.org/fred2/series/RCPHBS http://research.stlouisfed.org/fred2/series/RCPHBS Cost index (attempts to control for composition changes): http://research.stlouisfed.org/fred2/series/ECICOM http://research.stlouisfed.org/fred2/series/ECICOM
- moorhosj 9y ago
  Meanwhile, corporate profits as % of GDP are historically high: https://fred.stlouisfed.org/graph/?g=fPLQ https://fred.stlouisfed.org/graph/?g=fPLQ
  - tryptophan 9y ago
    This can explained by the fact that US companies are doing an increasing share of their business in non-US countries.
    - moorhosj 9y ago
      Is the inverse of this not true? Are non-US companies doing more of their business in the US?
entee 9y ago
There's plenty of evidence to suggest it's a contributor: https://www.bloomberg.com/news/articles/2017-09-19/rising-health-insurance-costs-blunt-employees-paycheck-gains https://www.bloomberg.com/news/articles/2017-09-19/rising-he... Though given the extraordinary profitability of companies right now, surely not the only factor. Some of those profits could be redistributed to workers. Not sure how to do that without potentially causing damage though.

specialist 9y ago

Tax burden shifted from Capital to Labor. Corporate profits increased, wages stagnated. Pretty simple, really. And yet. While mega corps (FANG et al) horde cash, and management & bankders gets their cheddar, Joe Average investors are getting screwed, and no one's freaking out.

staplers 9y ago
Distract from the class war by focusing on immigrants, terrorism, russia investigation, war on drugs, etc etc
- BookmarkSaver 9y ago
  I really don't see how you can include the Russia investigation on that list. The rest is raw fear-mongering.
  - TaylorAlexander 9y ago
    The Russia stuff has always seemed like fear mongering to me. It’s a big scary enemy messing with our political system. But is what’s happening actually new? And is what’s happening as significant as the news makes it out to be? Or is it another distraction with all the rest?
    - adventured 9y ago
      China previously bought its way into several of our Presidential elections. There was a small fraction of media obsession with that story compared to Russia now, for obvious reasons. 2007 LA Times: "Dishwashers, waiters and others whose jobs and dilapidated home addresses seem to make them unpromising targets for political fundraisers are pouring $1,000 and $2,000 contributions into Clinton's campaign treasury. In April, a single fundraiser in an area long known for its gritty urban poverty yielded a whopping $380,000. When Sen. John F. Kerry (D-Mass.) ran for president in 2004, he received $24,000 from Chinatown." http://www.latimes.com/la-na-donors19oct19-story.html http://www.latimes.com/la-na-donors19oct19-story.html https://en.wikipedia.org/wiki/1996_United_States_campaign_finance_controversy https://en.wikipedia.org/wiki/1996_United_States_campaign_fi... https://www.nationalreview.com/2017/07/chinese-illegally-donated-bill-clinton-reelection-campaign-media-downplayed/ https://www.nationalreview.com/2017/07/chinese-illegally-don...

skookumchuck 9y ago

> Maybe the solution is as easy as giving workers a voice. Maybe you should give the guy you paid to paint your garage a voice in your management of your home.

skosch 9y ago
On the face of it, your reductio ad absurdum is perfectly reasonable. Employees do their job, get their money, end of story. Right? In continental Europe, nobody expects it to work like that. It's a different mindset. If you work in a large firm, the works council has a say (to some degree) in management decisions. It's not always perfect – politics are everywhere – but it is completely normal and expected by bosses and workers alike that employment is a relationship, not a transaction. And for the most part, it seems to be working. To someone who grew up in that culture, your wild-west thinking seems a bit, well, primitive? Or uncivilized?
- skookumchuck 9y ago
  > primitive? uncivilized? Nice dismissal with the logical fallacy of appeal to emotion!
- adventured 9y ago
  > In continental Europe, nobody expects it to work like that. ... To someone who grew up in that culture, your wild-west thinking seems a bit, well, primitive? Or uncivilized? One should challenge that setup by asking the question: has contintental Europe's policies resulted in high wages? France has far lower wages than the US, with 1/4 to 1/5 the wage growth rate of the US over the last two decades. Germany, Britain, Spain, Portugal, Greece, Italy, Austria, Belgium, all have considerably lower wages than the US. Continental Europe also includes dozens of nations that are dramatically poorer than the US, both in terms of median income and median household net worth. Wouldn't it be more primitive or uncivilized to be using the French approach, since it has resulted in dramatically lower wage growth for decades now? Wage growth in France averaged 0.5% annually the prior two decades. In the US, 2.5% wage growth is considered very slow, with 3.5% to 4% being average in the 1999-2009 time frame. If their system works so well, where's the wage growth (and we're talking about the last 20 years, not a blip of time)?

galieos_ghost 9y ago

It's supply and demand 101. We've allowed 15-20 million illegal immigrants into our country who have no labor protection under federal law because they don't exist. End result is depressed wages up the chain.

neilwilson 9y ago

Policy determines that there can be only 19 jobs for every 20 people. That's what 'full employment' means under neoliberalism. How can work councils help that. Nothing will change until the Beveridge condition is restored - more jobs than people that want them.