3 ms·

While excess demand for laborers did contribute to the Great Compression, it was not the only contributing factor. The actions of Unions and Wage Controls, als

While excess demand for laborers did contribute to the Great Compression, it was not the only contributing factor. The actions of Unions and Wage Controls, also played a large role. Nonetheless you have a good point. The real question is why if productivity of the middle class is rising why aren't their incomes also rising. It seems that the marginal distribution of income should be somewhat related to marginal productivity changes of the workers, but its not.

pchristensen 16y ago
Business owners own the output of their employees, so the improvement in productivity goes to the owners. Employee wages are mostly determined by the supply and demand for the input of the workers. If demand is high, wages go up, if supply is high wages go down. It's the combination of low supply and high demand that gave workers the leverage to gain some of the increase in their output during the Great Compression.
- lukesandberg 16y ago
  That's true, it is up to the business owners to control their wages. But why is this changing so much more since the mid 1970's than before, and (even more importantly) should it be changing? With that second question we are getting more into a philosophical question than a purely economic one. I personally believe that additional productivity of a worker should benefit the worker not just the employer and i also believe that there should be institutions in place to promote and foster lower income inequality. Addressing this as purely an effect of supply and demand ignores the whole human component to the labor market and the vast political instability that can be created by an ineffective labor market.
  - pchristensen 16y ago
    Business owners control wages only in the event that labor supply outstrips demand. After the 70s, due to globalization and technology, the demand (in the US) for modestly educated bodies dropped, while the demand for (a comparatively smaller number of) highly educated workers increased. When you can buy steel from China or run a car factory with robots, what do the 20,000 workers that used to work there do? Google has ~20K employees worldwide and it's worth $175B, the old USX steel plant on the South Side of Chicago has 20,000 workers within 2 square miles. Tech companies create jobs, but nowhere near the number that manufacturing used to. I never mentioned whether this was a good thing or not. I think that every person that doesn't get autonomy, complexity, and a connection between effort and reward (worth reading the book Outliers just for that 3-item list), society will be poorer overall. So I think that unemployment and underemployment are huge drags on the economy, not to mention how devastating they are to the people involved. "I personally believe that additional productivity of a worker should benefit the worker not just the employer" - this happens when the worker creates unique or hard-to-replace value. I too wish everyone could do this, and it's one of the main reasons to do a startup. "i also believe that there should be institutions in place to promote and foster lower income inequality." - you can argue that YC is doing this, by teaching founders how to become richer than they would have otherwise been. The question is if this method (teach people to create more value vs capture value from those that create it) will scale to a whole society. I personally doubt that, so the question is how much to take from the top, and where to set the floor.
    - lukesandberg 16y ago
      sorry if i misinterpreted your earlier comments, it looks like we actually share a lot of the same ideas. I don't think that everyone in a society can generate unique value, but its great that in our society that people who can are able to do so. So we really need a better method than just the invisible hand of Adam Smith to solve this problem. Actually implementing policies to do this is incredibly complex, a lot of this is discussed (as they mention in the article) in the book Conscience of a Liberal by Paul Krugman. He made good arguments for raising minimum wages and the importance of unions. I'm kind of torn on the Union issue (too much Chicago School of Economics influence...), so i think there needs to be some sort of modernization of the union. Especially with trends pointing towards more and smaller companies, centralized unions don't seem to make much sense. Livable Minimum Wages seem to make a lot of sense and at least that is more politically tractable than setting wage maximums.

pchristensen 16y ago

Business owners own the output of their employees, so the improvement in productivity goes to the owners. Employee wages are mostly determined by the supply and demand for the input of the workers. If demand is high, wages go up, if supply is high wages go down. It's the combination of low supply and high demand that gave workers the leverage to gain some of the increase in their output during the Great Compression.

lukesandberg 16y ago
That's true, it is up to the business owners to control their wages. But why is this changing so much more since the mid 1970's than before, and (even more importantly) should it be changing? With that second question we are getting more into a philosophical question than a purely economic one. I personally believe that additional productivity of a worker should benefit the worker not just the employer and i also believe that there should be institutions in place to promote and foster lower income inequality. Addressing this as purely an effect of supply and demand ignores the whole human component to the labor market and the vast political instability that can be created by an ineffective labor market.
- pchristensen 16y ago
  Business owners control wages only in the event that labor supply outstrips demand. After the 70s, due to globalization and technology, the demand (in the US) for modestly educated bodies dropped, while the demand for (a comparatively smaller number of) highly educated workers increased. When you can buy steel from China or run a car factory with robots, what do the 20,000 workers that used to work there do? Google has ~20K employees worldwide and it's worth $175B, the old USX steel plant on the South Side of Chicago has 20,000 workers within 2 square miles. Tech companies create jobs, but nowhere near the number that manufacturing used to. I never mentioned whether this was a good thing or not. I think that every person that doesn't get autonomy, complexity, and a connection between effort and reward (worth reading the book Outliers just for that 3-item list), society will be poorer overall. So I think that unemployment and underemployment are huge drags on the economy, not to mention how devastating they are to the people involved. "I personally believe that additional productivity of a worker should benefit the worker not just the employer" - this happens when the worker creates unique or hard-to-replace value. I too wish everyone could do this, and it's one of the main reasons to do a startup. "i also believe that there should be institutions in place to promote and foster lower income inequality." - you can argue that YC is doing this, by teaching founders how to become richer than they would have otherwise been. The question is if this method (teach people to create more value vs capture value from those that create it) will scale to a whole society. I personally doubt that, so the question is how much to take from the top, and where to set the floor.
  - lukesandberg 16y ago
    sorry if i misinterpreted your earlier comments, it looks like we actually share a lot of the same ideas. I don't think that everyone in a society can generate unique value, but its great that in our society that people who can are able to do so. So we really need a better method than just the invisible hand of Adam Smith to solve this problem. Actually implementing policies to do this is incredibly complex, a lot of this is discussed (as they mention in the article) in the book Conscience of a Liberal by Paul Krugman. He made good arguments for raising minimum wages and the importance of unions. I'm kind of torn on the Union issue (too much Chicago School of Economics influence...), so i think there needs to be some sort of modernization of the union. Especially with trends pointing towards more and smaller companies, centralized unions don't seem to make much sense. Livable Minimum Wages seem to make a lot of sense and at least that is more politically tractable than setting wage maximums.