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This has scared me for quite some time: http://i.imgur.com/ZxBWh.png http://i.imgur.com/ZxBWh.png and: http://i.imgur.com/u6aU2.gif http://i.imgur.com/u6aU2.gi

This has scared me for quite some time: http://i.imgur.com/ZxBWh.png http://i.imgur.com/ZxBWh.png and: http://i.imgur.com/u6aU2.gif http://i.imgur.com/u6aU2.gif With a plausible explanation: http://economistsview.typepad.com/economistsview/2012/04/the-wedge-between-productivity-and-wages.html http://economistsview.typepad.com/economistsview/2012/04/the... The only explanation I can come up with is that this happened because it could. Because money is self-reinforcing, and breeds power, which allows control. But I don't think it's sustainable, and I think it's one of the largest, if not the largest problems with our society today. 1. I am not an economist. Is this view in any way valid? Am I seeing the right things? 2. What are the other causes? Surely the economy is complex and there are multiple driving factors. 3. What can we do? Help us all if this can't be resolved. Because that graph is very, very scary and I see this going downhill fast if something doesn't change.

uiri 14y ago
I think it may have everything to do with how we're measuring productivity. The world in 1975 is obviously not the world today. The biggest difference being the personal computer and by extension the internet. How much of productivity gains are due to computers? Email can be near-instantaneous and although the paperless office is probably a pipe dream, filing and paper work have become less plentiful and are taking less time. Not to mention the advances in software which improve productivity. Of course, this is just in offices. You can go ahead and look at factories which are becoming more computerized and I'm sure the primary sector has benefited from computers too. So, although workers of today are more productive - per dollar paid per hour/month/year, is it possible that people haven't actually been working harder but rather machines have been doing more work? Is it possible that these productivity gains represent value provided by giving every office an IT department rather than people working better (or harder or smarter)? I think it is possible, but I don't think it is a satisfactory explanation. It could simply be the effects of supply and demand on the marketplace. Beyond a certain point, money doesn't buy happiness so I see no reason why the upper end of salaries would increase other than pure greed (which is consistent with lots and lots of increases in executive pay) and unskilled labour provides minimal value so why would machines making one interchangeable labourer able to do the work of two or three interchangeable labourers lead to an increase in the pay of interchangeable labourers?
- ivany 14y ago
  One way to look at it: years ago, we dreamed that all of the menial tasks that we do would be done by robots, and that we could enjoy endless leisure while our robot servants labored under us. The first half of this dream is coming true. Unfortunately, the second half is not, and consequently we wind up with robots (or IT) doing the menial work instead of us while we sit unemployed.
  - jeremyjh 14y ago
    Well the fantasy was that we could go through this transition without a period of displacement and upheaval. That much is inevitable. Hopefully we can find a path through the increasing reality of technology unemployment that could reduce the stress on those at the edges of it.
  - keppy 14y ago
    Who will get paid when robots can do all of the work? Should robots get paychecks? Are people who use robots stealing from poor people since the robot is stealing the poor person's job? These are the questions we must answer before the robots take over hr and accounting.
    - flyinRyan 14y ago
      Why would anyone need to get paid if robots are doing all the work? And if no one needs to be paid, why does anything need to cost? Capitalism is nothing more than a system for allocating finite resources. If, for all practical intents and purposes, nothing is finite anymore then there's no reason to keep around a finite resources system.
  - chii 14y ago
    i was reading this http://marshallbrain.com/manna1.htm http://marshallbrain.com/manna1.htm its an interesting book about this very topic.
- azernik 14y ago
  Economically, there's no real difference between productivity rising for different reasons. However, people "working more" has nothing to do with any of them - productivity measures value produced per time worked, and so rising productivity by definition means that people produce more with the same amount of time working. From this perspective, there's no reason why a productivity rise due to computers in the 2000s should be any different from a productivity rise due to better factory equipment or production processes in the 70s.
guylhem 14y ago
If I may provide some help, economical theory has some explanations, including the Stopler Samuelson conclusion in the HO model for international commerce : in an economy focusing on the export of highly technical outputs, the best qualified have their "salary" go up, while the least qualified have their salary go down (leaving aside the fact that physical capital is responsible from most of the productivity gains, an explain Marx dislike since according to him it's all about how labor use and create physical capital) You can get such a divergence if you have fewer qualified people than less qualified people. Wrong conclusion like the one mentioned in the blog post can be reached when using a representative agent approach, while the actual population follows an (at least) bimodal distribution. In the end, there still is a divergence, but it doesn't have to be resolved - people either have to learn more and become more qualified and productive, accept their reducing wage, or move to another country (Mundell conclusion in the HO model IIRC) There is no reason why someone should commend a higher salary than someone else, just for having won the birth lottery ie being born in a reach country. If someone from say India is more productive than me, I see no reason why I should get more money than them.
- JoeAltmaier 14y ago
  A free market would help out some here; maybe its the lack of a global free market that is causing the disparity. In which case, being born in the wrong place would definitely put you at a disadvantage.
oscilloscope 14y ago
Marx considered a decline in real wages, even with increased productivity, to be an inherent feature of capitalism. http://en.wikipedia.org/wiki/Immiseration_thesis http://en.wikipedia.org/wiki/Immiseration_thesis Also related is the capitalist crisis, which tends to destroy the accumulated wealth of workers in recurring boom-bust cycles. http://en.wikipedia.org/wiki/Crisis_theory http://en.wikipedia.org/wiki/Crisis_theory
- steveklabnik 14y ago
  From one person who understands Marx to another, expect to get heavily downvoted around here. Every once in a while it's okay, but this isn't exactly a place that's friendly to criticisms of capitalism.
  - Androsynth 14y ago
    A lot of libertarians respect Marx. In general, he had a good understanding of the problems of a capitalist society and bad solutions to those problems. If you are talking about his vision and insights, like oscilloscope, you get respect. If you espouse socialism, you don't.
    - steveklabnik 14y ago
      You must talk to different libertarians than I. Most of them haven't read him. Marx actually did not espouse 'socialism.' He referred to an 'lower stage of communism,' and was incredibly critical of the utopian socialists of his time.
      - kamaal 14y ago
        Sorry but communism is badly flawed in its very design. It discourages hard working people and encourages lazy people by its very core philosophy. Nobody who is hard working will ever have an incentive when told he and the guy sitting next to him will get the same reward. And no lazy guy will ever work if he is told, regardless he will get the same as the guy who works hard. People in capitalists countries by and large are over a degree of measure living in better conditions than those living in communist countries. And people messing up their financial lives by reckless borrowing, debt and bad decisions[like taking loans to study humanities] is not the fault of capitalism.
yummyfajitas 14y ago
Some more graphs to look at: 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 Employers have shifted compensation from wages to benefits. In answer to your question of what to do about it, very simple - eliminate the tax advantages of assorted non-wage benefits (e.g., treat employer-provided health insurance, 401k matchin, etc as income).
- crasshopper 14y ago
  very simple - eliminate the tax advantages of assorted non-wage benefits yummyfajitas, that may shift compensation more towards wage/salary rather than benefits. What is it going to do about the unemployed youth?
  - twoodfin 14y ago
    You're losing the thread. There was a claim that capitalism was failing as a desirable economic system because median real wage growth slowed or stopped. I've always found this presentation of 1975 America as the height of the golden age before the fall to be transparently silly. Who'd rather be the median worker in 1975, and miss out on three+ decades of very nice quality of life improvements, even if their wages in real terms were the same? But yummyfajitas helpfully pointed out that the median worker continues to see compensation gains, just tilted toward ones that take a tax-advantaged form.
curt 14y ago
Remember all wage comparisons over time are basically useless unless you are comparing total compensation. You have huge costs that change over time such as federal employment taxes, unemployment insurance, workman's comp, 401k, and especially health insurance. These all eat into a persons hourly wage.
crasshopper 14y ago
money is self-reinforcing, and breeds power, which allows control. ... I don't think it's sustainable It sure sounds sustainable. I am not an economist. Is this view in any way valid? But you're quoting an economist. Am I seeing the right things?… What are the other causes? What can we do? I don't know if you remember the standard US economist's story for rising wage inequality in the late 90's and early 00's. It was "skill-biased technological change" or "perhaps trade". (I translate that as "No f___ing clue.") If any economists have figured out why wage:GDP ratios are dropping, I haven't heard that explanation. (Actually I have heard one but haven't thoroughly looked into it: declining union membership rates roughly anti correlate with the http://i.imgur.com/u6aU2.gif. http://i.imgur.com/u6aU2.gif.)
- georgemcbay 14y ago
  It sure sounds sustainable. It is sustainable up until the point where the guillotines are sharpened and the pitchforks come out. So probably about 10-15 more years on our current course.
polskibus 14y ago
Possible cause could be the rise of debt (the absolute total value of debt) as a major tool in fiscal policy and as a speculative financial instrument. The date where the two lines split on the first chart roughly coincides with the rise of hedge fund industry (see "More money than God" book for reference). I'm not criticising hedge funds per se, but the trend they created in financial instutions at large.
marknutter 14y ago
I'm out of my element here, but isn't the stagnation in wages counterbalanced by the availability of cheap goods and services? Sure, wages may not have gone up over the past 50 years, but your dollar can buy a heck of a lot more now than it could 50 years ago, thanks to cheap overseas labor, automation, technological innovations, etc. It makes sense that wages would reflect this, too. People agree to work for a wage that will let them afford the quality of life they are comfortable with. If you can live as comfortably as you could 50 years ago at roughly the same wages, then there's no reason they would need to rise. The final point is that the labor pool has roughly doubled since 1950 because women entered the work force. It's now more common to have two incomes per home than one, and it's only natural that wages would decrease accordingly. Again, it's because workers set a bar for themselves in terms of quality of life, and they simply want to reach that bar. If it can be done with two salaries buying cheap goods and services, then wages don't need to rise.
- eli_gottlieb 14y ago
  I'm out of my element here, but isn't the stagnation in wages counterbalanced by the availability of cheap goods and services? Sure, wages may not have gone up over the past 50 years, but your dollar can buy a heck of a lot more now than it could 50 years ago, thanks to cheap overseas labor, automation, technological innovations, etc. Has the Consumer Price Index gone down?
- chii 14y ago
  > it's because workers set a bar for themselves in terms of quality of life, and they simply want to reach that bar. If it can be done with two salaries buying cheap goods and services, then wages don't need to rise. thats a post facto explanation, which i don't believe can be used to make predictions. I mean, will wages rise if suddenly, due to post peak oil, that cost of living suddenly became high? I think the real reason wages didn't rise is because it didn't have to (from the point of view of the employer) - there are people willing to keep the same wage. In other words, people are becoming more and more worthless, especially unskilled workers (automation and robotics etc). Its a sad fact, but its true, and its a problem that needs fixing. Probably only fixable by better gov't policies on education.

uiri 14y ago

I think it may have everything to do with how we're measuring productivity. The world in 1975 is obviously not the world today. The biggest difference being the personal computer and by extension the internet. How much of productivity gains are due to computers? Email can be near-instantaneous and although the paperless office is probably a pipe dream, filing and paper work have become less plentiful and are taking less time. Not to mention the advances in software which improve productivity. Of course, this is just in offices. You can go ahead and look at factories which are becoming more computerized and I'm sure the primary sector has benefited from computers too. So, although workers of today are more productive - per dollar paid per hour/month/year, is it possible that people haven't actually been working harder but rather machines have been doing more work? Is it possible that these productivity gains represent value provided by giving every office an IT department rather than people working better (or harder or smarter)? I think it is possible, but I don't think it is a satisfactory explanation. It could simply be the effects of supply and demand on the marketplace. Beyond a certain point, money doesn't buy happiness so I see no reason why the upper end of salaries would increase other than pure greed (which is consistent with lots and lots of increases in executive pay) and unskilled labour provides minimal value so why would machines making one interchangeable labourer able to do the work of two or three interchangeable labourers lead to an increase in the pay of interchangeable labourers?

ivany 14y ago
One way to look at it: years ago, we dreamed that all of the menial tasks that we do would be done by robots, and that we could enjoy endless leisure while our robot servants labored under us. The first half of this dream is coming true. Unfortunately, the second half is not, and consequently we wind up with robots (or IT) doing the menial work instead of us while we sit unemployed.
- jeremyjh 14y ago
  Well the fantasy was that we could go through this transition without a period of displacement and upheaval. That much is inevitable. Hopefully we can find a path through the increasing reality of technology unemployment that could reduce the stress on those at the edges of it.
- keppy 14y ago
  Who will get paid when robots can do all of the work? Should robots get paychecks? Are people who use robots stealing from poor people since the robot is stealing the poor person's job? These are the questions we must answer before the robots take over hr and accounting.
  - flyinRyan 14y ago
    Why would anyone need to get paid if robots are doing all the work? And if no one needs to be paid, why does anything need to cost? Capitalism is nothing more than a system for allocating finite resources. If, for all practical intents and purposes, nothing is finite anymore then there's no reason to keep around a finite resources system.
- chii 14y ago
  i was reading this http://marshallbrain.com/manna1.htm http://marshallbrain.com/manna1.htm its an interesting book about this very topic.
azernik 14y ago
Economically, there's no real difference between productivity rising for different reasons. However, people "working more" has nothing to do with any of them - productivity measures value produced per time worked, and so rising productivity by definition means that people produce more with the same amount of time working. From this perspective, there's no reason why a productivity rise due to computers in the 2000s should be any different from a productivity rise due to better factory equipment or production processes in the 70s.

guylhem 14y ago

If I may provide some help, economical theory has some explanations, including the Stopler Samuelson conclusion in the HO model for international commerce : in an economy focusing on the export of highly technical outputs, the best qualified have their "salary" go up, while the least qualified have their salary go down (leaving aside the fact that physical capital is responsible from most of the productivity gains, an explain Marx dislike since according to him it's all about how labor use and create physical capital) You can get such a divergence if you have fewer qualified people than less qualified people. Wrong conclusion like the one mentioned in the blog post can be reached when using a representative agent approach, while the actual population follows an (at least) bimodal distribution. In the end, there still is a divergence, but it doesn't have to be resolved - people either have to learn more and become more qualified and productive, accept their reducing wage, or move to another country (Mundell conclusion in the HO model IIRC) There is no reason why someone should commend a higher salary than someone else, just for having won the birth lottery ie being born in a reach country. If someone from say India is more productive than me, I see no reason why I should get more money than them.

JoeAltmaier 14y ago
A free market would help out some here; maybe its the lack of a global free market that is causing the disparity. In which case, being born in the wrong place would definitely put you at a disadvantage.

oscilloscope 14y ago

Marx considered a decline in real wages, even with increased productivity, to be an inherent feature of capitalism. http://en.wikipedia.org/wiki/Immiseration_thesis http://en.wikipedia.org/wiki/Immiseration_thesis Also related is the capitalist crisis, which tends to destroy the accumulated wealth of workers in recurring boom-bust cycles. http://en.wikipedia.org/wiki/Crisis_theory http://en.wikipedia.org/wiki/Crisis_theory

steveklabnik 14y ago
From one person who understands Marx to another, expect to get heavily downvoted around here. Every once in a while it's okay, but this isn't exactly a place that's friendly to criticisms of capitalism.
- Androsynth 14y ago
  A lot of libertarians respect Marx. In general, he had a good understanding of the problems of a capitalist society and bad solutions to those problems. If you are talking about his vision and insights, like oscilloscope, you get respect. If you espouse socialism, you don't.
  - steveklabnik 14y ago
    You must talk to different libertarians than I. Most of them haven't read him. Marx actually did not espouse 'socialism.' He referred to an 'lower stage of communism,' and was incredibly critical of the utopian socialists of his time.
    - kamaal 14y ago
      Sorry but communism is badly flawed in its very design. It discourages hard working people and encourages lazy people by its very core philosophy. Nobody who is hard working will ever have an incentive when told he and the guy sitting next to him will get the same reward. And no lazy guy will ever work if he is told, regardless he will get the same as the guy who works hard. People in capitalists countries by and large are over a degree of measure living in better conditions than those living in communist countries. And people messing up their financial lives by reckless borrowing, debt and bad decisions[like taking loans to study humanities] is not the fault of capitalism.

yummyfajitas 14y ago

Some more graphs to look at: 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 Employers have shifted compensation from wages to benefits. In answer to your question of what to do about it, very simple - eliminate the tax advantages of assorted non-wage benefits (e.g., treat employer-provided health insurance, 401k matchin, etc as income).

crasshopper 14y ago
very simple - eliminate the tax advantages of assorted non-wage benefits yummyfajitas, that may shift compensation more towards wage/salary rather than benefits. What is it going to do about the unemployed youth?
- twoodfin 14y ago
  You're losing the thread. There was a claim that capitalism was failing as a desirable economic system because median real wage growth slowed or stopped. I've always found this presentation of 1975 America as the height of the golden age before the fall to be transparently silly. Who'd rather be the median worker in 1975, and miss out on three+ decades of very nice quality of life improvements, even if their wages in real terms were the same? But yummyfajitas helpfully pointed out that the median worker continues to see compensation gains, just tilted toward ones that take a tax-advantaged form.

curt 14y ago

Remember all wage comparisons over time are basically useless unless you are comparing total compensation. You have huge costs that change over time such as federal employment taxes, unemployment insurance, workman's comp, 401k, and especially health insurance. These all eat into a persons hourly wage.

crasshopper 14y ago

money is self-reinforcing, and breeds power, which allows control. ... I don't think it's sustainable It sure sounds sustainable. I am not an economist. Is this view in any way valid? But you're quoting an economist. Am I seeing the right things?… What are the other causes? What can we do? I don't know if you remember the standard US economist's story for rising wage inequality in the late 90's and early 00's. It was "skill-biased technological change" or "perhaps trade". (I translate that as "No f___ing clue.") If any economists have figured out why wage:GDP ratios are dropping, I haven't heard that explanation. (Actually I have heard one but haven't thoroughly looked into it: declining union membership rates roughly anti correlate with the http://i.imgur.com/u6aU2.gif. http://i.imgur.com/u6aU2.gif.)

georgemcbay 14y ago
It sure sounds sustainable. It is sustainable up until the point where the guillotines are sharpened and the pitchforks come out. So probably about 10-15 more years on our current course.

polskibus 14y ago

Possible cause could be the rise of debt (the absolute total value of debt) as a major tool in fiscal policy and as a speculative financial instrument. The date where the two lines split on the first chart roughly coincides with the rise of hedge fund industry (see "More money than God" book for reference). I'm not criticising hedge funds per se, but the trend they created in financial instutions at large.

marknutter 14y ago

I'm out of my element here, but isn't the stagnation in wages counterbalanced by the availability of cheap goods and services? Sure, wages may not have gone up over the past 50 years, but your dollar can buy a heck of a lot more now than it could 50 years ago, thanks to cheap overseas labor, automation, technological innovations, etc. It makes sense that wages would reflect this, too. People agree to work for a wage that will let them afford the quality of life they are comfortable with. If you can live as comfortably as you could 50 years ago at roughly the same wages, then there's no reason they would need to rise. The final point is that the labor pool has roughly doubled since 1950 because women entered the work force. It's now more common to have two incomes per home than one, and it's only natural that wages would decrease accordingly. Again, it's because workers set a bar for themselves in terms of quality of life, and they simply want to reach that bar. If it can be done with two salaries buying cheap goods and services, then wages don't need to rise.

eli_gottlieb 14y ago
I'm out of my element here, but isn't the stagnation in wages counterbalanced by the availability of cheap goods and services? Sure, wages may not have gone up over the past 50 years, but your dollar can buy a heck of a lot more now than it could 50 years ago, thanks to cheap overseas labor, automation, technological innovations, etc. Has the Consumer Price Index gone down?
chii 14y ago
> it's because workers set a bar for themselves in terms of quality of life, and they simply want to reach that bar. If it can be done with two salaries buying cheap goods and services, then wages don't need to rise. thats a post facto explanation, which i don't believe can be used to make predictions. I mean, will wages rise if suddenly, due to post peak oil, that cost of living suddenly became high? I think the real reason wages didn't rise is because it didn't have to (from the point of view of the employer) - there are people willing to keep the same wage. In other words, people are becoming more and more worthless, especially unskilled workers (automation and robotics etc). Its a sad fact, but its true, and its a problem that needs fixing. Probably only fixable by better gov't policies on education.