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I mean that people seem to be being paid roughly what they're worth, and at that level the median household ends up with $50K or so (the average household does

I mean that people seem to be being paid roughly what they're worth, and at that level the median household ends up with $50K or so (the average household does even better because of the skew at high incomes). $50K isn't great, but it's not, IMHO, indicative of workers with no negotiating power. How do we get from there to rayiner's "future" of Rosa Ramirez?

jiggy2011 13y ago
Under that model there is a large number of workers who are worth nothing at all or only their bare sustenance. Now this might be true to some degree from an economic standpoint (in that it's an equilibrium) but it doesn't look so rosy from a societal standpoint. And what purpose does the economy have if not to serve society? You also have to contend that market prices for labour would likely be higher if there were not so many unemployed. With low unemployment then firms would have incentive to make some of these temps into full time workers to prevent another firm from taking the best workers out of the temp pool.
- Futurebot 13y ago
  Regarding the "workers who are worth nothing" - Zero Marginal Product workers: http://marginalrevolution.com/marginalrevolution/2011/01/scott-sumner-on-zero-mp-workers.html http://marginalrevolution.com/marginalrevolution/2011/01/sco... http://marginalrevolution.com/marginalrevolution/2010/07/zero-marginal-product-workers.html http://marginalrevolution.com/marginalrevolution/2010/07/zer... From a societal standpoint, it's absolutely horrible. This train can't go on forever. At some point, the chorus of "basic income" from the large number of chronically unemployed will become too loud to ignore. For places that already have one, a recalibration towards an "Arts, Sports, and Lesiure society" should already be starting.
rayiner 13y ago
People are paid just less than MIN(cost to replace their labor in the labor market, cost to replace their labor with automation). Using terms like "worth" or "deserve" invoke a moral framework and it is unnecessary to do so. There is one moral framework where people are "worth" the price of their labor at the equilibrium of supply and demand, but that's not the only conceivable arrangement. For example, partners in a joint venture are rarely compensated on the equilibrium of supply and demand, but based on some percentage of the value of the venture. If someone's labor creates $X of value, there is no reason to say it is "worth" whatever it would cost to hire someone else to do the same labor instead of saying it is "worth" say 0.2 * $X. Which brings me to the issue of $50k median household income. Contrary to your assertion, it is highly indicative of workers with weakening negotiating power. The story of the last 30 years has been one of inflation-adjusted individual income (using household income is misleading because it glosses over changing labor force participation trends) lagging individual worker productivity. That means of each dollar value created by each worker, the employer (usually the capital owner) gets to keep more of that dollar today than they did 30 years ago. That is exactly what you would expect based on a decrease in workers negotiating power. This isn't a political argument, it's an economic argument. I'm not endorsing any particular steps towards remedying this issues. I'm pointing out the economic phenomena we are seeing.
- twoodfin 13y ago
  Do you have some numbers on individual worker income vs. individual worker productivity? Most numbers I've seen have been aggregated. And do you really believe that all productivity improvements would be captured by workers with sufficient negotiating power? What's the incentive for the capital owner to invest in new technology that would improve productivity if there's no profit motive because all the added revenue ends up in the workers' pockets?
  - jiggy2011 13y ago
    In a situation where the worker was capturing all of the productivity improvements then it would be in the workers interest for the workers to invest in new technology to improve productivity. I think we are quite far from a situation where a worker has enough negotiating power to capture everything. What we have is a situation where the share of the worker as a % of total is declining. A situation where that % doesn't buy financial security can look ugly quick.
  - rayiner 13y ago
    I haven't seen any disaggregated statistics, but I find this analysis quite detailed: http://www.epi.org/publication/ib330-productivity-vs-compensation http://www.epi.org/publication/ib330-productivity-vs-compens.... Also, real wages keeping pace with productivity improvements does not imply that the workers have captured all (or even most!) of the increased value yielding from productivity improvements. Say a worker produces $100 of value per day in 1970 and $150 per day (both inflation adjusted) in 2010. Productivity is up 50%. If his wages rise from $20 per day in 1970 to $30 per day in 2010, his wages will also be up 50%. But he will have captured only 20% of the increased value his labor generates ($10 out of $50 per day). The remainder is profit to his employer. However, he will have maintained his share of his total production at 20% (20 / 100 == 30 / 150), which is consistent with his maintaining negotiating power against his employer. But, what happens if his wage only rises from $20/day to $25/day? He will have captured only 10% of the increase in value from 1970 to 2010, but more importantly, his share of his total production will have fallen from 20% to 17%. That is consistent with a declining negotiating position.

jiggy2011 13y ago

Under that model there is a large number of workers who are worth nothing at all or only their bare sustenance. Now this might be true to some degree from an economic standpoint (in that it's an equilibrium) but it doesn't look so rosy from a societal standpoint. And what purpose does the economy have if not to serve society? You also have to contend that market prices for labour would likely be higher if there were not so many unemployed. With low unemployment then firms would have incentive to make some of these temps into full time workers to prevent another firm from taking the best workers out of the temp pool.

Futurebot 13y ago
Regarding the "workers who are worth nothing" - Zero Marginal Product workers: http://marginalrevolution.com/marginalrevolution/2011/01/scott-sumner-on-zero-mp-workers.html http://marginalrevolution.com/marginalrevolution/2011/01/sco... http://marginalrevolution.com/marginalrevolution/2010/07/zero-marginal-product-workers.html http://marginalrevolution.com/marginalrevolution/2010/07/zer... From a societal standpoint, it's absolutely horrible. This train can't go on forever. At some point, the chorus of "basic income" from the large number of chronically unemployed will become too loud to ignore. For places that already have one, a recalibration towards an "Arts, Sports, and Lesiure society" should already be starting.

rayiner 13y ago

People are paid just less than MIN(cost to replace their labor in the labor market, cost to replace their labor with automation). Using terms like "worth" or "deserve" invoke a moral framework and it is unnecessary to do so. There is one moral framework where people are "worth" the price of their labor at the equilibrium of supply and demand, but that's not the only conceivable arrangement. For example, partners in a joint venture are rarely compensated on the equilibrium of supply and demand, but based on some percentage of the value of the venture. If someone's labor creates $X of value, there is no reason to say it is "worth" whatever it would cost to hire someone else to do the same labor instead of saying it is "worth" say 0.2 * $X. Which brings me to the issue of $50k median household income. Contrary to your assertion, it is highly indicative of workers with weakening negotiating power. The story of the last 30 years has been one of inflation-adjusted individual income (using household income is misleading because it glosses over changing labor force participation trends) lagging individual worker productivity. That means of each dollar value created by each worker, the employer (usually the capital owner) gets to keep more of that dollar today than they did 30 years ago. That is exactly what you would expect based on a decrease in workers negotiating power. This isn't a political argument, it's an economic argument. I'm not endorsing any particular steps towards remedying this issues. I'm pointing out the economic phenomena we are seeing.

twoodfin 13y ago
Do you have some numbers on individual worker income vs. individual worker productivity? Most numbers I've seen have been aggregated. And do you really believe that all productivity improvements would be captured by workers with sufficient negotiating power? What's the incentive for the capital owner to invest in new technology that would improve productivity if there's no profit motive because all the added revenue ends up in the workers' pockets?
- jiggy2011 13y ago
  In a situation where the worker was capturing all of the productivity improvements then it would be in the workers interest for the workers to invest in new technology to improve productivity. I think we are quite far from a situation where a worker has enough negotiating power to capture everything. What we have is a situation where the share of the worker as a % of total is declining. A situation where that % doesn't buy financial security can look ugly quick.
- rayiner 13y ago
  I haven't seen any disaggregated statistics, but I find this analysis quite detailed: http://www.epi.org/publication/ib330-productivity-vs-compensation http://www.epi.org/publication/ib330-productivity-vs-compens.... Also, real wages keeping pace with productivity improvements does not imply that the workers have captured all (or even most!) of the increased value yielding from productivity improvements. Say a worker produces $100 of value per day in 1970 and $150 per day (both inflation adjusted) in 2010. Productivity is up 50%. If his wages rise from $20 per day in 1970 to $30 per day in 2010, his wages will also be up 50%. But he will have captured only 20% of the increased value his labor generates ($10 out of $50 per day). The remainder is profit to his employer. However, he will have maintained his share of his total production at 20% (20 / 100 == 30 / 150), which is consistent with his maintaining negotiating power against his employer. But, what happens if his wage only rises from $20/day to $25/day? He will have captured only 10% of the increase in value from 1970 to 2010, but more importantly, his share of his total production will have fallen from 20% to 17%. That is consistent with a declining negotiating position.