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Supply and Demand Does a Poor Job of Explaining Depressed Wages

98 points by thisisit 9y ago

howard941 9y ago
tl;dr Depressed wages are better explained by employers' ever more powerful bargaining position
- randyrand 9y ago
  ....which is dictated my the supply of employers thanks for the tldr.
  - DerpyBaby123 9y ago
    I don't think you can assert that S&D is the only factor, certainly labor law has an effect on the bargaining positions
  - cortesoft 9y ago
    Except it isn’t, it because of the way labor and employers have different costs when an employee leaves, meaning each side has a different equation for how important it is to not sever the employment arrangement. If an employee loses their job, they lose 100% of their income, and for many they are unable to survive this. If an employer loses an employee, they only lose 1/n of their production, where n is the number of employees they have. They can handle that reduction while they look for a new employee way more than the employee can. That is what prevents the market from being efficient.
    - js8 9y ago
      > That is what prevents the market from being efficient The problem is, nobody really wants labor markets to be efficient. Efficient labor markets mean that we would pay workers the subsistence wages, because, why they should be paid more? That's the thing, labor is not like other commodities, say apples or computers. You want to make the price of other commodities to be as low as possible, and everybody (all humans in society) wins. But for price of labor this is not true.
      - cortesoft 9y ago
        That isn’t true; an efficient market doesn’t imply that we will pay workers subsistence wages. Market rate has nothing to do with what a person needs to survive. The rate would be set based on competition with other employers for employees; you pay enough to keep a worker from getting a job at another employer. So the answer to the question, “why would you pay more?” is, “so they don’t start working for someone else instead” Now, the market system doesn’t work for employment because of the reason I stated in my original comment, but it isn’t related to the ‘minimum wages needed to survive’
    - peoplewindow 9y ago
      That assumes all employees are equal which in any non-factory-churn-operation company is not going to be true.
      - cortesoft 9y ago
        Even if all employees aren’t equal it will still be some fraction of total productivity that is lost, which is always going to be less than the 100% lost by an employee.
  - nrb 9y ago
    That's only part of the equation. Survival often necessitates taking a sub-optimal deal. Employees are very more likely to be forced into this position than an employer, who can often survive with reduced staff.
  - Florin_Andrei 9y ago
    That's very naive and narrow. The power of monopolies is actually inversely proportional to the "supply" of such entities.
drabiega 9y ago
More minimum wage studies are certainly welcome, but the fact that supply and demand models are remarkably poor matches for the labor market is certainly not new. Anyone with more familiarity with Labor Economics than your typical news show talking head should be aware of this.
readams 9y ago
It should be pointed out that studies of small increases of minimum wage that show modest harm do not immediately tell us that huge increases of minimum wage will not cause greater harm. Remember that $15/hour is more than the median wage in much of the country.
- andy_ppp 9y ago
  These jobs that are worth less than $15 per hour are going to be the first to be replaced by machines so whatever happens we need a solution to give people at the bottom high(er) quality lives.
  - toomuchtodo 9y ago
    > we need a solution to give people at the bottom high(er) quality lives. Training and safety nets, funded through tax revenues. Keep in mind, the national minimum wage in Australia is currently $18.29. The entire US has been getting a discount on minimum wage labor for decades, and everyone is kicking and screaming now that those workers are having their wages ratcheted up to what they should be making when accounting for inflation [1] [2]. [1] http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage/ http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-abou... [2] https://www.cnbc.com/2016/07/21/adjusted-for-inflation-the-federal-minimum-wage-is-worth-less-than-50-years-ago.html https://www.cnbc.com/2016/07/21/adjusted-for-inflation-the-f...
    - comstar 9y ago
      Not to discredit anything you've said, as on the whole I agree with you. But movie tickets are nearly twice as expensive in Australia. [0] [1] And a popular videogame can be wildly more expensive. MLB The Show 2018 for instance is $60 in the US and $100 in AU. These prices are outside that which is explained by the current exchange rate. Yes, you are being paid more. The price of living is also drastically higher there. I think there are better case-studies than Australia. [0] https://www.screenaustralia.gov.au/fact-finders/cinema/industry-trends/box-office/ticket-prices https://www.screenaustralia.gov.au/fact-finders/cinema/indus... [1] https://www.statista.com/statistics/187091/average-ticket-price-at-north-american-movie-theaters-since-2001/ https://www.statista.com/statistics/187091/average-ticket-pr...
grecy 9y ago
That's because depressed wages are caused by the drive for ever increasing profits.
- sp332 9y ago
  Yes but the workers have a drive for increasing profits too, and there are more of them. So that's not really a good explanation.
  - toomuchtodo 9y ago
    Workers have less power to increase wages than corporations have to increase revenue and profits. This has occurred, arguably, because of right to work laws and the reduction in organized labor (which previously negotiated wages with more power).
    - aantix 9y ago
      Is that true? A corporation that relies on 50,000+ employees to deliver a service or product, and those employees collectively stop working?
      - toomuchtodo 9y ago
        I don't entirely grok your question, but it sometimes does take walkouts to exert force to obtain wage concessions (teacher strikes, pilot strikes, etc). Teachers striking in several states are exerting enough force to obtain meaningful wage increases. http://nymag.com/daily/intelligencer/2018/04/the-teachers-strikes-have-exposed-the-gops-achilles-heel.html http://nymag.com/daily/intelligencer/2018/04/the-teachers-st... https://www.wsj.com/articles/why-teachers-strikes-are-becoming-a-nationwide-movement-1522584001 https://www.wsj.com/articles/why-teachers-strikes-are-becomi...
  - leadingthenet 9y ago
    This is where an understanding of power structures and hierarchies helps.
coldtea 9y ago
The world is not driven by economics (and its simplistic assumptions), it's driven by power relations and human nature. Supply and demand is not the only thing to influence the job market -- power and knowledge asymmetries can do the same thing just as well.
- gowld 9y ago
  What is the difference between economics and power relations? Human nature I understand -- people have mental/emotional shortcuts that are not precise and accurate rational analysis.
  - coldtea 9y ago
    >What is the difference between economics and power relations? In an ideal world, economics would study power relations as they relate to money -- that's what the old economists (19th century and so) called "political economy". In the present world, economics are a shallow ideology around the "free market", with naive abstractions and axioms. Usually these are mostly peddled by the media and "popularizer" economists at the masses, but what actual academic economists sell is not that much better.
    - dragonwriter 9y ago
      > In an ideal world, economics would study power relations as they relate to money -- that's what the old economists (19th century and so) called "political economy". “Money” is overly restrictive, it's really all goods and services, and the old “political economy” is a substantial part of what eventually became the field of “political science”. It may not still be considered mainly in the scope of Economics departments, but then what used to be called “natural philosophy, while still studied, isn't part of scope of the Philosophy department.
    - anubisresources 9y ago
      What economics courses have you taken that are remotely like this? Economics is extremely quantitative and is not some “shallow ideology”.
otakucode 9y ago
Introducing any very significant productivity increasing tools seems to result in depressed wages. It happened when we moved to factory production, resulting in entire families working 16 hour days 6 days a week to barely earn a subsistence living. And it's happening with computers. When your employees produce 8% more each year, it's easy to justify giving them 5% raises. What happens when your employees produce 80% more every year? You can't stomach the idea of giving them raises commensurate with that, so you just tell yourself 'its the machine doing the real work, they don't deserve anything' and raises stop.
CryoLogic 9y ago
Is it possible that low skill jobs are simply less valuable to the economy than before?
- gowld 9y ago
  "Less valuable" is not a relevant concept when discussing the distribution of profits of the overall business. If the overall business is profitable, obviously the business could afford to pay workers more.
- mar77i 9y ago
  It is possible that low skill jobs are simply less valued to the economy. Because life must be made hard for those down, so it can be made easy for... urm... those who already have enough. Point in case shows once more that that isn't even true.
sprash 9y ago
Supply and demand does a great job of explaining depressed wages. We had two kinds supply shocks in the recent history in the labor market. One is women entering the workforce and the second is mass immigration. Both coincided at the end of the 60s and 70s. Exactly since then wages are not correlated to productivity anymore and are basically stagnating.
- TheAdamAndChe 9y ago
  Globalization occurred during this time, too, leading to a greater concentration of wealth in the cities.
- Frondo 9y ago
  You blame women and immigrants, but a much more likely explanation is the decline of union participation in the private American workforce. They've been on the decline since the 1970s, and the more they've declined, the more that productivity has been captured by upper management and shareholders.
  - brightball 9y ago
    Sticking to the supply-demand theme...decline in union participation could also come as a result of bad experiences with unions over leveraging their positions causing business to prefer non-union workers. At the same time, as working conditions improved the benefits of participating in a union could be much less pronounced. Meaning that demand for non-union workers increased, which were in ample supply. To truly make a case for union participation you have to also make a case for how hiring union workers benefits a business. If that isn't plainly obvious, then the demand for union workers themselves will go down.
  - randomdata 9y ago
    That is still explained by supply and demand though. A union works by artificially constraining the labor pool, reducing the employer to buying from (typically) one seller (the union) instead of many (each employee individually). Unionized workers are usually able to make more money than they would in a non-unionized market because of that smaller supply of sellers relative to the demand. However, as a Canadian who saw peak unionization in the mid-80s, long after wages also started stagnating in our country, and a country that still has relatively strong unionization even today (especially compared to the significant decline seen in the USA), I'm not sure that this explanation holds.
moorhosj 9y ago
Traditional supply and demand economics implies open and equal information for buyer (employer) and seller (employee). For goods and services, there is transparency in the price of a product. In the labor relationship, the buyer (employer) holds almost all of the information that impacts price (wages). - Employers know how many candidates they have for a position. - Employers know what they have paid for that position in the past. - Employers can often afford to wait longer to decide. It should also be noted that the US taxes wages at a higher rate than investment or dividend earnings. This may distort the market as certain income streams are incentivized over others.
js8 9y ago
Supply and demand does a poor job at explaining anything. The price changed.. why? Was it because it moved toward an equilibrium, from the equilibrium, has the demand curve shifted, has the supply curve shifted? The problems of general equilibrium approach are quite succinctly described in Keen: Debunking Economics. And compared to approach in Blatt: Dynamic Economic Systems, it's a disaster - too many parameters and assumptions for too little explaining power. It was a pretty decent way to describe the world when Walras came up with it; but it should have been obsoleted years ago.
crabasa 9y ago
One thing worth noting is that one of the clearest paths to earning higher wages and being more successful in a career lies in networking and learning how to leverage that network. In theory, the dominant tool for this should be LinkedIn. But LinkedIn decided early on that serving professionals was less lucrative than serving companies. So the vast majority of products and capabilities that LinkedIn has shipped over the years has been to serve the needs and interests of companies. Sometimes at the expense of professionals (InMail spam). There really isn't a tool out there that workers can use that addresses the power and knowledge asymmetries that exist today.
- prolikewhoa 9y ago
  I don't think you read the article at all. This has nothing to do about LinkedIn or networking. You have to be seriously deluded to think that LinkedIn or any other social media company, as well as general networking is the way to defeat our massive levels of income inequality. You're essentially telling bootless people to pull up their bootstraps by making friends with executives and managers. It's not that simple, and condensing the problem into what you're talking about is ignorant at best.
  - crabasa 9y ago
    I did read the article, but I see how the LinkedIn comment is causing you to think of white collar executives. The fact is that informal forms of networking are how people of all cultures and income levels have always advanced their mutual interests. One of the most effective ways to combat modern poverty is to provide people with mobile devices that enable them to better communicate and build relationships over time. I'd ask you to consider what a more people-oriented piece of software might look like that would be accessible to as many people as possible and enable very specific use case, such as "I'm looking for a new job" or "I'm willing to be a mentor" that currently get lost in the noise of all-purpose social media.
    - cimmanom 9y ago
      Networking may help the individual get a better job (usually at the expense of someone else getting that job), but it doesn't fix anything about the larger problem, which is the failure of wages to keep up with the cost of living or respond to demand for labor.
raintrees 9y ago
I do not think that any theory that does not include the distorting effects of central banks and governmental regulation will provide the answers they are looking for...
datamingle 9y ago
Discussing wages with supply & demand and not taking into account the worldwide labor supply. At some point, it is more profitable for companies to move overseas.
pedro_hab 9y ago
This is an interesting topic, but it is sad to see how people react to it. A lot of comments here saying the whole system is broken. An average poor man in the US probably lives better than kings lived in the past. Food, water, food, hospitals, AC, heaters and such. These evil employers/entrepreneurs are the one creating it. Life by every metric is getting better, can it be better? Maybe. Now we could discuss how to improve the system, and its flaws, but this level of cynicism is hard to handle. I guess by coming from a really poor reality it skews my view of the world.
- jonny_eh 9y ago
  > Life by every metric is getting better, can it be better? Maybe. Not with that attitude! > Now we could discuss how to improve the system, and its flaws, but this level of cynicism is hard to handle. Agreed, we need to identify the problems and then be optimistic about solutions.
  - pedro_hab 9y ago
    You are right, I was a bit cynical there myself. But then again, I can't refrain from the fact that is way better today, I talk to older people and see how thing worked and it does look way better than it was. It seems that people are expecting life not to be filled with suffering, which is the case unfortunately, and it becomes harder to see the good parts.
- andmarios 9y ago
  Yes, you live better than people 100 years ago. But what about 40 or 20 years ago? Is it easier for an average person to buy a home or car than it was for their parents? Do they work more or less from their parents? Is it easier to have and raise kids?
  - pedro_hab 9y ago
    Well, I think those are localized issues. For instance, in Brazil its way easier today to buy a car than it was in the past. But houses are diff, the place I grew up in saw a 50x price increase. It is hard to buy houses there. To the point where renting is a better investment than buying (not a absolute, obviously), and makes you think that people overvalue property there, the interest rates are insane. But most statistics are going downward trend, crime for instance, its going down in all developed countries.
randomdata 9y ago
> Supply-and-demand theory once made sense. That was before employers gained so much power. Except power itself is determined by supply and demand. Employers have gained more power precisely because of the increased labor supply (more women, more robots, more foreign workers) that is also responsible for stagnant wages. The power, of course, comes from the need for others to have association with that person/business. In the current market, if one employee doesn't like the terms and conditions of the job, there are many others who will be quite happy to take their spot. This gives the employer leverage as employees want to be employed. However, if there were actually more employers than employees, then the reverse would be true. Employees would be free to treat employers however they wanted, and force them to pay more money, without repercussion since if the employer walks away, there would be many more willing to take the worker. This gives the leverage to the employees as employers want employees.
- brightball 9y ago
  Exactly. The article implies that bargaining position is the deciding factor here. Bargaining position is ENTIRELY defined by economics. How many options does the company have to fill the role you are applying for? How many jobs do you have the ability to fill? What is the compensation level for those jobs? In a pool of workers, on a sheer measurable and presentable skill set...do you stand out? Networking, creates a connection that helps you stand out so when a company is taking job applicants they have a supply of people who stand out and a supply of "general workforce". Standing out can just mean an existing relationship, a recommendation from a trusted person, or some other type of quality that makes you a preferred candidate. There is a more limited supply of "preferred" candidates and those folks will be more aggressively sought after (and compensated). We'd like for it to be all about skill, but businesses are run by people and many people place a high value on trust. When it comes to the more general pool of candidates, that pool is a whole lot bigger and if you haven't worked your way into the preferred group for the company then you do have very little bargaining power...meaning there is an ample supply of people who can fill the role. This article, despite the title...doesn't actually do anything to change the reality any more than publishing an article titled "2 + 2 is not actually 4" disproves it. The content has to prove the headline...and it doesn't.
RcouF1uZ4gsC 9y ago
There was this study that actually studied a minimum wage increase in Seattle that did not paint such a easy picture of wage hikes. https://www.seattletimes.com/business/uw-study-finds-seattles-minimum-wage-is-costing-jobs/ https://www.seattletimes.com/business/uw-study-finds-seattle...
peoplewindow 9y ago
This doesn't seem like a very good analysis. For one, it makes sweeping generalisations about the economy. It is not true that employers always have market power and employees don't. There are lots of areas where it's inverted. The most obvious example right now is AI researchers but software in general is and has been for a long time an employees market. By the same logic that this author uses to justify minimum wages because it's hard for employees to find new jobs in some sectors, you could justify maximum wages because it's hard for employers to find new employees in some sectors. But nobody would support that - it'd be absurd.
bbimbop 9y ago
Of course. The fact that wages are suppressed is known and expected. The author fails to mention the theory of sticky wages. Why? The author is making a political statement about wage policy. In doing so lets you assume that wages should be related to supply and demand, but they are not. Wage levels are sticky and lag behind changes in the supply and demand for labor. Good news is that you can expect wages to increase in the relatively short-run, from which it seems the author (and most everyone) would benefit. https://www.investopedia.com/terms/s/sticky-wage-theory.asp https://www.investopedia.com/terms/s/sticky-wage-theory.asp
ChuckMcM 9y ago
I miss the times when I thought Supply and Demand could explain wages. In a fully globalized economy I expect it would be more useful to do comparative GDP studies to understand the use of labor capital and its ability to fund production.
- awat 9y ago
  Exactly, supply and demand is pretty easy for people to grep (including myself) when explained in a simple cartoon or econ 1010 class. It’s current application in a globalized market is anything but transparent, which makes it even harder to properly identify manipulative forces in the market.
ogn3rd 9y ago
Greed explains it well.
defertoreptar 9y ago
> find that in areas where there are fewer employers in an industry, workers in that industry earn lower wages. > [...] > Together with the evidence on minimum wage, this new evidence suggests that the competitive supply-and-demand model of labor markets is fundamentally broken. How does that contradict supply and demand? Less employers = less supply of jobs = oversupply of workers = downward pressure on salaries.
JamesLeonis 9y ago
I am reminded of this tweet from one of the Federal Bank guys [1] > We were at maximum employment. We are now at maximumer employment. > I thought the "tongue-in-cheekiness" of my tweet would be obvious. Allow me to translate: We keep saying we are at max employment and then all these people choose to work. It suggests we weren't really at max employment. [1]: https://twitter.com/neelkashkari/status/972142317162369024 https://twitter.com/neelkashkari/status/972142317162369024 And more recent [2] > 1. Yes it matters 2. Even more important is that we should now recognize our gauge of labor market slack is broken >> What metric would you suggest instead? > A combination of factors: prime age LFP and EPOP. Most importantly: when assessing supply and demand in a market, start by looking at the price. Wage growth has been surprisingly slow. Suggests more slack. [2]: https://twitter.com/neelkashkari/status/978041558342791176 https://twitter.com/neelkashkari/status/978041558342791176
purplezooey 9y ago
One thing I've learned is that the right wing will always tons more money and resources than the left in the US. This is an example of how effective the right wing message machine can be, having been a loud opponent of minimum wage increases for what are increasingly bogus reasons.

98 points by thisisit 9y ago

howard941 9y ago

tl;dr Depressed wages are better explained by employers' ever more powerful bargaining position

randyrand 9y ago
....which is dictated my the supply of employers thanks for the tldr.
- DerpyBaby123 9y ago
  I don't think you can assert that S&D is the only factor, certainly labor law has an effect on the bargaining positions
- cortesoft 9y ago
  Except it isn’t, it because of the way labor and employers have different costs when an employee leaves, meaning each side has a different equation for how important it is to not sever the employment arrangement. If an employee loses their job, they lose 100% of their income, and for many they are unable to survive this. If an employer loses an employee, they only lose 1/n of their production, where n is the number of employees they have. They can handle that reduction while they look for a new employee way more than the employee can. That is what prevents the market from being efficient.
  - js8 9y ago
    > That is what prevents the market from being efficient The problem is, nobody really wants labor markets to be efficient. Efficient labor markets mean that we would pay workers the subsistence wages, because, why they should be paid more? That's the thing, labor is not like other commodities, say apples or computers. You want to make the price of other commodities to be as low as possible, and everybody (all humans in society) wins. But for price of labor this is not true.
    - cortesoft 9y ago
      That isn’t true; an efficient market doesn’t imply that we will pay workers subsistence wages. Market rate has nothing to do with what a person needs to survive. The rate would be set based on competition with other employers for employees; you pay enough to keep a worker from getting a job at another employer. So the answer to the question, “why would you pay more?” is, “so they don’t start working for someone else instead” Now, the market system doesn’t work for employment because of the reason I stated in my original comment, but it isn’t related to the ‘minimum wages needed to survive’
  - peoplewindow 9y ago
    That assumes all employees are equal which in any non-factory-churn-operation company is not going to be true.
    - cortesoft 9y ago
      Even if all employees aren’t equal it will still be some fraction of total productivity that is lost, which is always going to be less than the 100% lost by an employee.
- nrb 9y ago
  That's only part of the equation. Survival often necessitates taking a sub-optimal deal. Employees are very more likely to be forced into this position than an employer, who can often survive with reduced staff.
- Florin_Andrei 9y ago
  That's very naive and narrow. The power of monopolies is actually inversely proportional to the "supply" of such entities.

drabiega 9y ago

More minimum wage studies are certainly welcome, but the fact that supply and demand models are remarkably poor matches for the labor market is certainly not new. Anyone with more familiarity with Labor Economics than your typical news show talking head should be aware of this.

readams 9y ago

It should be pointed out that studies of small increases of minimum wage that show modest harm do not immediately tell us that huge increases of minimum wage will not cause greater harm. Remember that $15/hour is more than the median wage in much of the country.

andy_ppp 9y ago
These jobs that are worth less than $15 per hour are going to be the first to be replaced by machines so whatever happens we need a solution to give people at the bottom high(er) quality lives.
- toomuchtodo 9y ago
  > we need a solution to give people at the bottom high(er) quality lives. Training and safety nets, funded through tax revenues. Keep in mind, the national minimum wage in Australia is currently $18.29. The entire US has been getting a discount on minimum wage labor for decades, and everyone is kicking and screaming now that those workers are having their wages ratcheted up to what they should be making when accounting for inflation [1] [2]. [1] http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage/ http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-abou... [2] https://www.cnbc.com/2016/07/21/adjusted-for-inflation-the-federal-minimum-wage-is-worth-less-than-50-years-ago.html https://www.cnbc.com/2016/07/21/adjusted-for-inflation-the-f...
  - comstar 9y ago
    Not to discredit anything you've said, as on the whole I agree with you. But movie tickets are nearly twice as expensive in Australia. [0] [1] And a popular videogame can be wildly more expensive. MLB The Show 2018 for instance is $60 in the US and $100 in AU. These prices are outside that which is explained by the current exchange rate. Yes, you are being paid more. The price of living is also drastically higher there. I think there are better case-studies than Australia. [0] https://www.screenaustralia.gov.au/fact-finders/cinema/industry-trends/box-office/ticket-prices https://www.screenaustralia.gov.au/fact-finders/cinema/indus... [1] https://www.statista.com/statistics/187091/average-ticket-price-at-north-american-movie-theaters-since-2001/ https://www.statista.com/statistics/187091/average-ticket-pr...

grecy 9y ago

That's because depressed wages are caused by the drive for ever increasing profits.

sp332 9y ago
Yes but the workers have a drive for increasing profits too, and there are more of them. So that's not really a good explanation.
- toomuchtodo 9y ago
  Workers have less power to increase wages than corporations have to increase revenue and profits. This has occurred, arguably, because of right to work laws and the reduction in organized labor (which previously negotiated wages with more power).
  - aantix 9y ago
    Is that true? A corporation that relies on 50,000+ employees to deliver a service or product, and those employees collectively stop working?
    - toomuchtodo 9y ago
      I don't entirely grok your question, but it sometimes does take walkouts to exert force to obtain wage concessions (teacher strikes, pilot strikes, etc). Teachers striking in several states are exerting enough force to obtain meaningful wage increases. http://nymag.com/daily/intelligencer/2018/04/the-teachers-strikes-have-exposed-the-gops-achilles-heel.html http://nymag.com/daily/intelligencer/2018/04/the-teachers-st... https://www.wsj.com/articles/why-teachers-strikes-are-becoming-a-nationwide-movement-1522584001 https://www.wsj.com/articles/why-teachers-strikes-are-becomi...
- leadingthenet 9y ago
  This is where an understanding of power structures and hierarchies helps.

coldtea 9y ago

The world is not driven by economics (and its simplistic assumptions), it's driven by power relations and human nature. Supply and demand is not the only thing to influence the job market -- power and knowledge asymmetries can do the same thing just as well.

gowld 9y ago
What is the difference between economics and power relations? Human nature I understand -- people have mental/emotional shortcuts that are not precise and accurate rational analysis.
- coldtea 9y ago
  >What is the difference between economics and power relations? In an ideal world, economics would study power relations as they relate to money -- that's what the old economists (19th century and so) called "political economy". In the present world, economics are a shallow ideology around the "free market", with naive abstractions and axioms. Usually these are mostly peddled by the media and "popularizer" economists at the masses, but what actual academic economists sell is not that much better.
  - dragonwriter 9y ago
    > In an ideal world, economics would study power relations as they relate to money -- that's what the old economists (19th century and so) called "political economy". “Money” is overly restrictive, it's really all goods and services, and the old “political economy” is a substantial part of what eventually became the field of “political science”. It may not still be considered mainly in the scope of Economics departments, but then what used to be called “natural philosophy, while still studied, isn't part of scope of the Philosophy department.
  - anubisresources 9y ago
    What economics courses have you taken that are remotely like this? Economics is extremely quantitative and is not some “shallow ideology”.

otakucode 9y ago

Introducing any very significant productivity increasing tools seems to result in depressed wages. It happened when we moved to factory production, resulting in entire families working 16 hour days 6 days a week to barely earn a subsistence living. And it's happening with computers. When your employees produce 8% more each year, it's easy to justify giving them 5% raises. What happens when your employees produce 80% more every year? You can't stomach the idea of giving them raises commensurate with that, so you just tell yourself 'its the machine doing the real work, they don't deserve anything' and raises stop.

CryoLogic 9y ago

Is it possible that low skill jobs are simply less valuable to the economy than before?

gowld 9y ago
"Less valuable" is not a relevant concept when discussing the distribution of profits of the overall business. If the overall business is profitable, obviously the business could afford to pay workers more.
mar77i 9y ago
It is possible that low skill jobs are simply less valued to the economy. Because life must be made hard for those down, so it can be made easy for... urm... those who already have enough. Point in case shows once more that that isn't even true.

sprash 9y ago

Supply and demand does a great job of explaining depressed wages. We had two kinds supply shocks in the recent history in the labor market. One is women entering the workforce and the second is mass immigration. Both coincided at the end of the 60s and 70s. Exactly since then wages are not correlated to productivity anymore and are basically stagnating.

TheAdamAndChe 9y ago
Globalization occurred during this time, too, leading to a greater concentration of wealth in the cities.
Frondo 9y ago
You blame women and immigrants, but a much more likely explanation is the decline of union participation in the private American workforce. They've been on the decline since the 1970s, and the more they've declined, the more that productivity has been captured by upper management and shareholders.
- brightball 9y ago
  Sticking to the supply-demand theme...decline in union participation could also come as a result of bad experiences with unions over leveraging their positions causing business to prefer non-union workers. At the same time, as working conditions improved the benefits of participating in a union could be much less pronounced. Meaning that demand for non-union workers increased, which were in ample supply. To truly make a case for union participation you have to also make a case for how hiring union workers benefits a business. If that isn't plainly obvious, then the demand for union workers themselves will go down.
- randomdata 9y ago
  That is still explained by supply and demand though. A union works by artificially constraining the labor pool, reducing the employer to buying from (typically) one seller (the union) instead of many (each employee individually). Unionized workers are usually able to make more money than they would in a non-unionized market because of that smaller supply of sellers relative to the demand. However, as a Canadian who saw peak unionization in the mid-80s, long after wages also started stagnating in our country, and a country that still has relatively strong unionization even today (especially compared to the significant decline seen in the USA), I'm not sure that this explanation holds.

moorhosj 9y ago

Traditional supply and demand economics implies open and equal information for buyer (employer) and seller (employee). For goods and services, there is transparency in the price of a product. In the labor relationship, the buyer (employer) holds almost all of the information that impacts price (wages). - Employers know how many candidates they have for a position. - Employers know what they have paid for that position in the past. - Employers can often afford to wait longer to decide. It should also be noted that the US taxes wages at a higher rate than investment or dividend earnings. This may distort the market as certain income streams are incentivized over others.

js8 9y ago

Supply and demand does a poor job at explaining anything. The price changed.. why? Was it because it moved toward an equilibrium, from the equilibrium, has the demand curve shifted, has the supply curve shifted? The problems of general equilibrium approach are quite succinctly described in Keen: Debunking Economics. And compared to approach in Blatt: Dynamic Economic Systems, it's a disaster - too many parameters and assumptions for too little explaining power. It was a pretty decent way to describe the world when Walras came up with it; but it should have been obsoleted years ago.

crabasa 9y ago

One thing worth noting is that one of the clearest paths to earning higher wages and being more successful in a career lies in networking and learning how to leverage that network. In theory, the dominant tool for this should be LinkedIn. But LinkedIn decided early on that serving professionals was less lucrative than serving companies. So the vast majority of products and capabilities that LinkedIn has shipped over the years has been to serve the needs and interests of companies. Sometimes at the expense of professionals (InMail spam). There really isn't a tool out there that workers can use that addresses the power and knowledge asymmetries that exist today.

prolikewhoa 9y ago
I don't think you read the article at all. This has nothing to do about LinkedIn or networking. You have to be seriously deluded to think that LinkedIn or any other social media company, as well as general networking is the way to defeat our massive levels of income inequality. You're essentially telling bootless people to pull up their bootstraps by making friends with executives and managers. It's not that simple, and condensing the problem into what you're talking about is ignorant at best.
- crabasa 9y ago
  I did read the article, but I see how the LinkedIn comment is causing you to think of white collar executives. The fact is that informal forms of networking are how people of all cultures and income levels have always advanced their mutual interests. One of the most effective ways to combat modern poverty is to provide people with mobile devices that enable them to better communicate and build relationships over time. I'd ask you to consider what a more people-oriented piece of software might look like that would be accessible to as many people as possible and enable very specific use case, such as "I'm looking for a new job" or "I'm willing to be a mentor" that currently get lost in the noise of all-purpose social media.
  - cimmanom 9y ago
    Networking may help the individual get a better job (usually at the expense of someone else getting that job), but it doesn't fix anything about the larger problem, which is the failure of wages to keep up with the cost of living or respond to demand for labor.

raintrees 9y ago

I do not think that any theory that does not include the distorting effects of central banks and governmental regulation will provide the answers they are looking for...

datamingle 9y ago

Discussing wages with supply & demand and not taking into account the worldwide labor supply. At some point, it is more profitable for companies to move overseas.

pedro_hab 9y ago

This is an interesting topic, but it is sad to see how people react to it. A lot of comments here saying the whole system is broken. An average poor man in the US probably lives better than kings lived in the past. Food, water, food, hospitals, AC, heaters and such. These evil employers/entrepreneurs are the one creating it. Life by every metric is getting better, can it be better? Maybe. Now we could discuss how to improve the system, and its flaws, but this level of cynicism is hard to handle. I guess by coming from a really poor reality it skews my view of the world.

jonny_eh 9y ago
> Life by every metric is getting better, can it be better? Maybe. Not with that attitude! > Now we could discuss how to improve the system, and its flaws, but this level of cynicism is hard to handle. Agreed, we need to identify the problems and then be optimistic about solutions.
- pedro_hab 9y ago
  You are right, I was a bit cynical there myself. But then again, I can't refrain from the fact that is way better today, I talk to older people and see how thing worked and it does look way better than it was. It seems that people are expecting life not to be filled with suffering, which is the case unfortunately, and it becomes harder to see the good parts.
andmarios 9y ago
Yes, you live better than people 100 years ago. But what about 40 or 20 years ago? Is it easier for an average person to buy a home or car than it was for their parents? Do they work more or less from their parents? Is it easier to have and raise kids?
- pedro_hab 9y ago
  Well, I think those are localized issues. For instance, in Brazil its way easier today to buy a car than it was in the past. But houses are diff, the place I grew up in saw a 50x price increase. It is hard to buy houses there. To the point where renting is a better investment than buying (not a absolute, obviously), and makes you think that people overvalue property there, the interest rates are insane. But most statistics are going downward trend, crime for instance, its going down in all developed countries.

randomdata 9y ago

> Supply-and-demand theory once made sense. That was before employers gained so much power. Except power itself is determined by supply and demand. Employers have gained more power precisely because of the increased labor supply (more women, more robots, more foreign workers) that is also responsible for stagnant wages. The power, of course, comes from the need for others to have association with that person/business. In the current market, if one employee doesn't like the terms and conditions of the job, there are many others who will be quite happy to take their spot. This gives the employer leverage as employees want to be employed. However, if there were actually more employers than employees, then the reverse would be true. Employees would be free to treat employers however they wanted, and force them to pay more money, without repercussion since if the employer walks away, there would be many more willing to take the worker. This gives the leverage to the employees as employers want employees.

brightball 9y ago
Exactly. The article implies that bargaining position is the deciding factor here. Bargaining position is ENTIRELY defined by economics. How many options does the company have to fill the role you are applying for? How many jobs do you have the ability to fill? What is the compensation level for those jobs? In a pool of workers, on a sheer measurable and presentable skill set...do you stand out? Networking, creates a connection that helps you stand out so when a company is taking job applicants they have a supply of people who stand out and a supply of "general workforce". Standing out can just mean an existing relationship, a recommendation from a trusted person, or some other type of quality that makes you a preferred candidate. There is a more limited supply of "preferred" candidates and those folks will be more aggressively sought after (and compensated). We'd like for it to be all about skill, but businesses are run by people and many people place a high value on trust. When it comes to the more general pool of candidates, that pool is a whole lot bigger and if you haven't worked your way into the preferred group for the company then you do have very little bargaining power...meaning there is an ample supply of people who can fill the role. This article, despite the title...doesn't actually do anything to change the reality any more than publishing an article titled "2 + 2 is not actually 4" disproves it. The content has to prove the headline...and it doesn't.

RcouF1uZ4gsC 9y ago

There was this study that actually studied a minimum wage increase in Seattle that did not paint such a easy picture of wage hikes. https://www.seattletimes.com/business/uw-study-finds-seattles-minimum-wage-is-costing-jobs/ https://www.seattletimes.com/business/uw-study-finds-seattle...

peoplewindow 9y ago

This doesn't seem like a very good analysis. For one, it makes sweeping generalisations about the economy. It is not true that employers always have market power and employees don't. There are lots of areas where it's inverted. The most obvious example right now is AI researchers but software in general is and has been for a long time an employees market. By the same logic that this author uses to justify minimum wages because it's hard for employees to find new jobs in some sectors, you could justify maximum wages because it's hard for employers to find new employees in some sectors. But nobody would support that - it'd be absurd.

bbimbop 9y ago

Of course. The fact that wages are suppressed is known and expected. The author fails to mention the theory of sticky wages. Why? The author is making a political statement about wage policy. In doing so lets you assume that wages should be related to supply and demand, but they are not. Wage levels are sticky and lag behind changes in the supply and demand for labor. Good news is that you can expect wages to increase in the relatively short-run, from which it seems the author (and most everyone) would benefit. https://www.investopedia.com/terms/s/sticky-wage-theory.asp https://www.investopedia.com/terms/s/sticky-wage-theory.asp

ChuckMcM 9y ago

I miss the times when I thought Supply and Demand could explain wages. In a fully globalized economy I expect it would be more useful to do comparative GDP studies to understand the use of labor capital and its ability to fund production.

awat 9y ago
Exactly, supply and demand is pretty easy for people to grep (including myself) when explained in a simple cartoon or econ 1010 class. It’s current application in a globalized market is anything but transparent, which makes it even harder to properly identify manipulative forces in the market.

ogn3rd 9y ago

Greed explains it well.

defertoreptar 9y ago

> find that in areas where there are fewer employers in an industry, workers in that industry earn lower wages. > [...] > Together with the evidence on minimum wage, this new evidence suggests that the competitive supply-and-demand model of labor markets is fundamentally broken. How does that contradict supply and demand? Less employers = less supply of jobs = oversupply of workers = downward pressure on salaries.

JamesLeonis 9y ago

I am reminded of this tweet from one of the Federal Bank guys [1] > We were at maximum employment. We are now at maximumer employment. > I thought the "tongue-in-cheekiness" of my tweet would be obvious. Allow me to translate: We keep saying we are at max employment and then all these people choose to work. It suggests we weren't really at max employment. [1]: https://twitter.com/neelkashkari/status/972142317162369024 https://twitter.com/neelkashkari/status/972142317162369024 And more recent [2] > 1. Yes it matters 2. Even more important is that we should now recognize our gauge of labor market slack is broken >> What metric would you suggest instead? > A combination of factors: prime age LFP and EPOP. Most importantly: when assessing supply and demand in a market, start by looking at the price. Wage growth has been surprisingly slow. Suggests more slack. [2]: https://twitter.com/neelkashkari/status/978041558342791176 https://twitter.com/neelkashkari/status/978041558342791176

purplezooey 9y ago

One thing I've learned is that the right wing will always tons more money and resources than the left in the US. This is an example of how effective the right wing message machine can be, having been a loud opponent of minimum wage increases for what are increasingly bogus reasons.