Growing Productivity, Stagnating Compensation
Crossposted at The Street Light.
Yesterday Ezra Klein had a chart (from a paper by Larry Mishel and Heidi Shierholz at EPI) showing that both private sector and public sector wages have been stagnating for the past several years, and have certainly not kept up with productivity growth. I think it’s useful to look at the relationship between productivity and compensation over a longer time horizon.
The following chart shows labor productivity and real hourly compensation since 1950. (Data from the BLS.) Two things strike me particularly about this graph. The first is how closely the two series track each other between 1950 and 1980. During those 30 years labor productivity in the nonfarm business sector of the US economy rose by 92%; real hourly compensation paid to workers rose by a nearly identical 87%. Classical economic theory says that is exactly what we would expect – as workers become more valuable to firms by producing more output with every hour of labor, firms should compete with each other to employ them, driving up wages by an equal amount.
The second striking feature of this picture is, of course, how much the two series have diverged since the early 1980s. Output per hour of work in 2010 was 87% higher than in 1980, while real hourly compensation was only 38% higher.
The table below shows changes in labor productivity and hourly compensation by decade. Again, let me draw your attention to two features. First, this data confirms that the “great productivity slowdown” of the 1970s and 80s seems to have been vanquished; over the past 15 to 20 years US businesses have been improving productivity at rates as high as during the 1950s and 60s. Yet more evidence that Tyler Cowen’s “Great Stagnation” is not a productivity story.
The second remarkable feature of this table is that the vast majority of the gap between productivity and hourly compensation comes from the 1980s and 2000s, while during the 1990s workers shared in productivity gains nearly as fully as they did in the 1960s. And that, of course, leads us directly to the $64,000 question: what was it about the 1980s and 2000s that made it so difficult for workers to reap the fruits of their more productive labor?
This is exactly the reason, the only reason for the economic malaise that the country is in right now. The failure to enforce labor laws and a government that is anti-labor. The fact is that there are two components to our system. Like the threads in a cloth. Capital and labor. When we have an entire political party that is dedicated to delegitimizing the political power of one of the fundamental components of our system, it falls apart. It becomes just a bunch for fucking thread, no longer a fabric. It consumes itself because capital is too stupid in and of itself to recognize that one business’s labor costs is the next business’s customer base. They will never figure that out because they are mindless profit machines. It takes an active government willing to enforce labor law. Something that one of our major political parties is philosophically incapable of doing.
Effective innovation would not only reduce the hours of labor required for a given output but also the quality of skill required (partly as quality control, but also to reduce further the value of the labor), and the savings should greatly outweigh the cost of the labor to create or manufacture the innovation and additional compensation paid to the highly skilled engineer or process designer. That labor produces more value doesn’t imply that the labor is more valuable.
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what was it about the 1980s and 2000s that made it so difficult for workers to reap the fruits of their more productive labor?
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Physical capital is held by mgmt while mental capital is held by labor; the mental capital required to build out the internet was in short supply during the tech bubble, so labor had more leverage in the 90’s than in the 80’s or 2000’s.
Side issue: rising wages during the 90’s drew college students into tech, which shows us that given the proper incentives people are quite willing to enter the field. We’re not lacking engineers in the current environment, we’re lacking demand for engineers.
$90B of R&D a year ties up a lot of engineers trying to sell off the F-35 (one example) which contributes nothing to the productive economy.
Add to that $149B a year to buy things that blow things up in Iraq and Afghanistan and are marshaller to defeat some fiction threat, and it is a wonder that productivity gorws at all.
Imagine if $240B year of production and technical capacity were freed up to build infrastructure and communities.
War is an “unproductive luxury”.
That is unmitigated horse shit requiring a value judgement regarding the value of labor, something you clearly don’t have a proper appreciation for. If human beings are required to do the work then the work has value. If laws are required to force the business to arrive at an equitable distribution of the profits of the enterprise between the people who invest in it and those who work in it then those laws are essential to a decent society and a effective economy. The problem is that public policy has devalued labor. And attitudes such as yours has mindlessly devalued labor. Failure to enforce labor laws including the right to organize and collective bargaining rights lead to the same place. The last brutal ten minutes of a game of monopoly.
Ah, I’m sorry-do you really suppose beating your chest and posturing is an argument? If you think very hard about it, you will see that it’s actually your position that requires a value judgment, and words like “equitable,” “decent” “collective bargaining rights” ought to be a clue, whereas “lower-skill-level-greater-substitutability-lower-value” can stand on its own. I’m deeply sorry that you’ve had the misfortune to encounter someone who doesn’t share your self-evidently enlightened values, perhaps an unfair surprise on Angry Bear.
Two points –labour productivity in the US is measured by profit divided by numbers of US employees, as I understand it. So offshoring labour to less efficient but far cheaper workers, or moving it to robot labour, will in the raw numbers look as though the surviving US workers are much more effective. while their wages stagnate.
Secondly, from the 80s onwards the US economy was increasingly living off its fat, general wealth laid down between 1945 and the 80s. Any economy will look good if it’s fed by existing wealth, till that wealth is depleted.
You could say that the late 70s marked the point in time when rationality and conservatism lost its grip upon gevernance, retaining the outward name of conservatism while gearing up to burn the wainscotting and furniture.
Great minds evidently think alike! 🙂 My current post is similar to this one, and points out how ridiculously and dangerously top-heavy our income scale has become. Until American workers (the most overworked and productive labor force in the WORLD) once again have some real money and buying power back in their hands (as they did from 1950-1980), our economy will NEVER improve! CORPORATE GREED IS KILLING US!!!
View my post if you like over at THE SATURDAY AFTERNOON POST (http://www.jackjodell.blogspot.com/).
The gap is more of an hour/product deal. We simply aren’t nearly the manufacturing-based economy we once were. Those productivity hours are now overseas.
Now we “make” financial-instruments, information-manipulation (IT) (or data-processing to us old guys), and we “make” services.
All of those products mixed together require less man-hours, per value of “product”. That’s your gap.
Take that chart for instance. In the day; that would have been a few days of research (actual research ala libraries, phone calls, manually pageing through a maze of ducuments) , an afternoon with a straight-edge and crayons for draft… a trip to a real printing shop (not a Kinkos, as in next to every CVS).. a two-day wait for custom lamination.. and finally a weeks notice to round up an audience.
TODAY, you can do the whole thing on your laptop, while watching television.. and show it to the world, almost instantly. A chart of even greater value, for a tiny fraction of the man-hours.
TStockman:
You are just as guilty as SW. Answer the question or the statement:
“The problem is that public policy has devalued labor.”
Since the eighties productivity gains have been skewed towards capital and away from Labor. Spencer does a nice little graph on it here: http://www.angrybearblog.com/2009/10/labors-share.html “Labor’s Share”
The outcome should be that Labor does share in the increase in productivity and fewer are paid more.
What this tells me is that Classical Economic Theory has since it’s origins ignored the elephant in the room. Wage setting has never been a matter of marginal productivity and free market competition for labor but instead a product of capital’s ability to call on State power to enable an exploitation of pricing power. You just need to read E.P. Thompson’s Making of the English Working Class to see the dynamic. When industrialist can call on the political and police powers of government to suppress collective bargaining wages get suppressed, when as in pos WwI Britain and the USA after 1932 power shifts the other way so do results in Real Wage. As always the Invisible Hand is so because it sports an Invisible silk glove over it’s actual iron hand.
That is Supply and Demand always surrenders to Pricing Power.
Good to see at AB. Have fun.
RweTHEREyet,
Good to see you at AB again. I believe that you will enjoy the environment here. Have fun!
Kash didn’t bother to identify the tables or series from which he extracted his BLS data. That’s unfortunate if others are trying to duplicate his summary numbers. Maybe Kash will pull back the curtain and update his main post.
Kash’s productivity growth and real compensation growth percentages do not represent what has happened in the manufacturing industry. The reality is quite different than what is portrayed here which apparently represents rates of growth and decline for all business activity in the USA. Some might be surprised to learn that manufacturing real wage growth for 2000-2009 exceeded such growth from 1990-2000. BLS provided this analysis in a report released in January 2011 which was briefly summarized in February.
It would have made more sense in my judgement to break down the sector comparisons for each period, 1980s, 1990s, 2000s. More informed discussions could have occurred as opposed to the lump it all together rants that normally flow on the econ blogs.
The BLS Editor’s Desk (TED) is filled with informative articles on productivity as are available elsewhere, so Kash is not covering new ground.
It strikes me that Kash’s attempt to lump the 1980s and 2000s together as if they mimic each other with regard to labor productivity and real wage growth is a bit sloppy if not misleading if you note the BLS article and summary linked below (BLS2 and BLS3). Kash’s derived percentages do not reflect the BLS data represented in January article or February summary for those periods.
BLS1, BLS2, BLS3, BLS4
I find it interesting that the increasing gap between productivity and wages is similar to the increasing gap between CEO pay and average worker pay. Increased worker productivity has funded CEO ballooning salaries, at the expense of their own salaries.
I have a concern, but I don’t want to make the mistake that lead Paul Krugman to apologize for his error
http://krugman.blogs.nytimes.com/2011/02/02/prices-and-plutocrats/
Krugman’s (invalid in this case) argument is that comparing real wages to real productivity one risks correcting for two measures of inflation which are systematically different, because they are made by different agencies. Wages are deflated by the CPI made by the BLS. Productivity is often deflated by the GDP deflator made by the BEA. Krugman noted this in criticizing Lane Kenworthy, who used the same deflator for median family income and gDP per family.
If the difference were just a matter of different baskets, then it would be perhaps an explanation of real wage stagnation, but not an argument that the relationship between wages and productivity hasn’t changed. However, a large part of the difference is due to the fact that the BEA corrects more for increased quality (especially of computers). This is very important, because the BEA changed its approach around 1980 (until then it assumed that the price of computing power was constant (I kid you not) not declining 20% a year).
So I have to ask how you calculate real productiviity and the real wage ? If you use official real GDP per hour worked and real hourly compensation, then you are partly observing the difference between the approaches of the BEA and the BLS. What does the table look like with nominal not real ? I mean aside from the fact that growth will be real fast in the 70s of course.
MG like you are always precise. Just yesterday you supported a post with ‘CBO,Treasury’
Well that narrowed it down for us! When it suits you the sourcing gets pretty damn amorphous. On the other hand you have shown an ability to drill right down to the paragraph level. Even as you cite the couple of clauses and sentences that support your case and ditch the exculpatory ones.
You really are not in a position to be casting aspersions about selectivity here. “Physician heal thyself”
Your selective quotations from Steve Goss’s SSA Bulletin article is proof positive of your fundamental intellectual dishonesty. Deal with it.
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“Take that chart for instance. In the day; that would have been a few days of research (actual research ala libraries, phone calls, manually pageing through a maze of ducuments)”
So why are we paying Wall Street Traders who no longer have to do this kind of work to make their calls but instead rely on computer programs coming down from the Nobelist mathameticians designing their models which then require them to push the ‘Trade’ button at the right second huge sums of money?
That argument cuts both ways it seems. From the outside it looks like we could trade a lot of traders in for carnival chickens who know when to peck at the right light. Somehow all of that computer added productivity doesn’t seem to be subtracting from THEIR compensation.
Well, I’m happy to be only equally guilty in your eyes. Let me try again in a more respectful manner: there is no reason to believe that the rise in productivity is due to more skilled direct labor inputs, but rather to some combination of increased capital and indirect labor inputs to realize the capital. That’s reflects how capital and management labor would direct the evolution of an enterprise. In response to that quote, I would say the problem isn’t so much that public policy has (actively) devalued labor, but that it was not acted as a counterweight 9OR MAINTAINED THE COUNTERWEIGHT) to the incentives in a technological and managerial economy with high wages to reduce labor, in terms of both quantity and skill. You need to justify your “should” share – that’s the inserted value. There is an important and fairly objective argument buried in SW’s cri de couer, that failure to distribute the gains more widely causes a demand deficit and therefore ultimately damages the economy as a whole, but that’s a fair leap to moralistic notion of just desserts.
You’re absolutely correct.. in fact, it cuts omni-directional. It cut the livelyhood out from under the buggy-whip maker, too.
Should we pay an information handler a day’s wage per hour, because he can now do what was a day’s worth of work in that hour ? Should an assembly-line worker reap a wage equal to his, and three other employees, because with automation and robotics, his hour of labor now produces quadruple the product value ?
Of course it’s not that straight-forward, as both the IT guy, and the assembler are supported by the man-hours invested in building/maintaining information-systems, and computers themselves.. and the robots and their systems. The factory owner who takes grief for replacing men with automation, should also be credited for the jobs that decision creates.
As for button-pushing traders and their compensation; you’ll find me an ally in that discussion… until I open my portfolio statements and discover that their “mindless” timing beat the Dow by 7%. Lest we forget that for every successful trader, there’s a trader who finds himself broke, and unemployed. It’s a scary, cut-throat world.
If we wanna ring our hands over what the the securities/commodity market has evolved into; again I’m your ally… But we better be prepared to have people growing the food they need.. because corporate-farms, and evil retail giants are destructively greedy (on behalf of their “civilian” stock holders)…
CEO salaries.. hmm. It sure is easy to hate them.. Is successfully piloting tens of billions in assets to billions in profit worth a tiny percentage of that profit ? (it sure is when it provides job security, and attracts/keeps investors).. Would the work-force in search of their share of the profit be willing to take pay cuts during less profitable periods.. or even PAY to keep the job during a period of loss ? Or better yet.. would they be willing to put their life-savings at risk, and dedicate their life-work into creating a company ?
Before you come at me with insults.. I fully realize my points are anecdotal, but no more so than the argument that attacks these issues from a predisposition for class-warfare.
If we want to truely investigate wage disparity.. we gotta scrutinize what has happened to the work-ethic. You’re old enough to have seen what has happened to it over the last, forty-years.. from the paper-boy, to the fast-food clerk, to the Post Office worker, to the (you pick). We just aren’t as motivated and hard-working as we use to be… because we don’t HAVE to be. Todays public schools don’t even ask it of our children. An average, twenty-fist century college grad would have his hands full against a 1960s eigth-grader in a game of Jeopardy where the topics were: Math / Science / Geography / History / Civics.
If this all manifests itself in fretting over wealth distribution.. perhaps at least a small factor is that a smaller and smaller percentage of people are educated and motivated enough to accumulate wealth ? There’s surely enough wealth-redistribution in place, to enable those who choose not to.
(sorry.. I get carried away)
Yes. Please do justify acting in a way that is just.
I notice that for many traders it didn’t help them make better trades either.
And of course the suppression of collective bargaining isn’t over. Leaving aside the legal skirmishes undertaken by a few adventurous GOP governors employed by the Kochs we have the unfolding spectacle in the middle east.
The stability enhancing strongmen who have been recipients of most of the US foreign aid largesse in the region turn out to be fairly violent repressors of worker rights. Who’da thunk it?
For working people the outlook for this decade may well turn on whether Madison or Tripoli turn out to be the model.
“If you want peace, work for justice” – Pope Paul VI
Yeah, according to Rawls or Rand? Pilate clearly flubbed his line. Given his position “just” would have been a more interesting question than “truth.”
Let’s look at one, relatively simple, sector of the economy, Agriculture:
between 1950 and 2000, the average amount of milk produced per cow increased from 5,314 pounds to 18,201 pounds per year, the average yield of corn rose from 39 bushels to 153 bushels per acre, and each farmer in 2000 produced on average 12 times as much farm output per hour worked as a farmer did in 1950. http://www.ers.usda.gov/publications/EB9/eb9.pdf
Yet the wage of the farm hand has not increased proportionately. Why not? BECAUSE THE FARM HAND WAS NOT RESPONSIBLE FOR THE GROWTH IN PRODUCTIVITY. If he was (like a trader or CEO or entertainer) he would be expected to see commensurate compensation.
The development of new technology was a primary factor in these improvements.
Odious arguments like this one always make me think of Dickens, Steinbeck, and sometimes even Shakespeare. I won’t lengthen this reference with quotes you already know them if you have been educated at all.
You can keep Rand and Hayek. They didn’t explain anything to me I haven’t understood since I was about 5.
True enough..
Absolutely ! WORK for justice.. don’t pool your efforts demand it be given to you.
Let’s look at one, relatively simple, sector of the economy, Agriculture:
between 1950 and 2000, the average amount of milk produced per cow increased from 5,314 pounds to 18,201 pounds per year, the average yield of corn rose from 39 bushels to 153 bushels per acre, and each farmer in 2000 produced on average 12 times as much farm output per hour worked as a farmer did in 1950. http://www.ers.usda.gov/publications/EB9/eb9.pdf
Yet the wage of the farm hand has not increased proportionately. Why not? BECAUSE THE FARM HAND WAS NOT RESPONSIBLE FOR THE GROWTH IN PRODUCTIVITY. If he was (like a trader or CEO or entertainer) he would be expected to see commensurate compensation.
It is only the inputs that can be identified as drivers of productivity where you would see the bidding necessary to equalize productivity and compensation.
Right. Like the protesters in Madison and Lansing!
Ummm.. no .. that’s the demand approach..
The gap closes when we are near full employment. When unemployment is high, worker compensation suffers. IOW Cheap Labor policy.
You say potato, I say potato gun.
IOW Layoffs = profit expansion
Genius as long as some of the people laid off aren’t your eventual customers. Or their customers. Etc.
Another plot that would help is capital deployed per worker, i.e. how much equipment is supplied to each worker. That number is much higher that in the past as machines do cost money. Watch modern marvels on the history channel and its amazing how much machines can do. If you divide the investment required for a modern plant with the number of workers the number should be higher, and the capital does demand its return also.
I’m happy to provide specific sources for data upon request. In this case I took both series directly from the BLS, and made no modifications to them myself:
http://www.bls.gov/data/#productivity
The BLS creates the real compensation/hr series, and therefore deflates it using their own deflator. Of course, the BLS gets much of their output and compensation data from the BEA, but they use their own deflator. (See the technical notes for details: http://www.bls.gov/lpc/lpcmethods.htm )
RW – your point about getting the deflators right is an important one, and I toyed with using a different deflator instead. But in this case I decided to just go with the BLS numbers, and BLS uses the CPI-U to deflate compensation. Note that if you deflate compensation/hour by a price index that is more relevant to employers, such as the price index of the output of nonfarm business (and which therefore captures much better how much labor is worth to firms), then the divergence between productivity and compensation doesn’t look quite so bad. In fact, I think it’s an interesting question exactly how much of the stagnation in worker compensation is due to differences between business output prices and consumer prices. (Business output prices have gone up by less than consumer prices.) Regardless, in this case I stuck with the BLS’s deflator since that better reflects the purchasing power of employee compensation, which is of course what matters to workers.
The argument is not that the labor input requires more skill and therefore ‘deserves’ to be compensated at a higher level. The argument is divorced from skill level. The argument concerns the intrinsic value of the labor that is required to make the business run. And realizing that this intrinsic value is on par with capital. Face it, if a business could eliminate all labor it would. The fact that it doesn’t is an admission that it is essential. IF productivity gains mean that they require fewer people to run the business, even if these are now ‘lower skilled positions’ they still need these people and need to compensate them appropriately. As an equitable fraction of the profits from the business. That is what effective labor law is about. That is what has been missing in action.
It used to be that technology replaced mainly unskilled labor. And the cry was that if you got yourself an education you would make yourself irreplaceable. This is no longer the case. Productivity enhancing technology today generally means that the same people do the same job with fewer coworkers, working longer hours, taking lunch at their desks forgoing vacations etc. Because they fear they will be replaced, because they have no power whatso ever in the workplace.
Yup..
Lyle,
Interestingly, the study on agricultural productivity I linked to http://www.ers.usda.gov/publications/EB9/eb9.pdf
says this:
After 1980, capital, land, labor, chemical, and
energy inputs to agriculture fell, even as agricultural output continued to grow, and increased productivity
hence drove all of the output growth.
So it is not a “capital vs. labor” story. The dark matter is information.
No acknowledgement that Layoffs = Profit preservation ?
Sans profit, the entire company goes away taking ALL the jobs down with it..
Webb,
Why do persist in telling lies? If you had bothered in clicking on any of the embedded reference or source links I have provided recently, you would have known that the links take the reader directly to the page of material concerned or in the case of a pdf file, the report or reference concerned. I already responded to one of your dumb claims about this on another thread.
The quotes from Stephen Goss is a perfect example. Your threw out one of your usual lies about my reference. Had you clicked on the link instead of running your mouth, you would have seen that the SSA link took readers directly to the page where Goss made such statements.
You don’t have a valid complaint. You’re just engaged in an endless, useless string of personal attacks.
Shut up, Webb.
Webb,
Why do you persist in telling lies? If you had bothered in clicking on any of the embedded reference or source links I have provided recently, you would have known that the links take the reader directly to the page of material concerned or in the case of a pdf file, the report or reference concerned. I already responded to one of your dumb claims about this on another thread.
The quotes from Stephen Goss is a perfect example. Your threw out one of your usual lies about my reference. Had you clicked on the link instead of running your mouth, you would have seen that the SSA link took readers directly to the page where Goss made such statements.
You don’t have a valid complaint. You’re just engaged in an endless, useless string of personal attacks.
Shut up, Webb. You’re just a liar.
Webb,
Why do you persist in telling lies? If you had bothered clicking on any of the embedded reference or source links I have provided recently, you would have known that the links take the reader directly to the page of material concerned or in the case of a pdf file, the report or reference concerned. I already responded to one of your dumb claims about this on another thread.
The quotes from Stephen Goss is a perfect example. Your threw out one of your usual lies about my reference. Had you clicked on the link instead of running your mouth, you would have seen that the SSA link took readers directly to the page where Goss made such statements.
You don’t have a valid complaint. You’re just engaged in an endless, useless string of personal attacks and lies.
Shut up, Webb.
Kash,
You haven’t identified the series or table from which you pulled the source data. There are a number of different references tables, interactive tables, and series by which one could pull together such a brief presentation. I need to know which tables or series you used.
I attempted to duplicate your percentages using the source data I assumed that you used and the percentages do not match. The BLS article and summary that I cited do not support your conclusions, either. There is no near perfect match between the data from the 1980s and 2000s as your final percentage indicates. It is not even close in the BLS presentation.
Two comments deleted…
I have not read to the end, but I need to make a point I have previously made based I admit on purely anecdotal evidence. With the move away from manufacturing, the decline in unions and the rise in unemployment, capital has been able to extract many more working hours from salaried people without paying a nickel for those extra hours. Productivity may appear to be skyrocketing, but in truth it may actually be falling–due to exhaustion. In an hourly wage sector of the economy, a unionized sector of the economy or in periods of low unemployment, capital can not do this, but it happened in the early 80’s–when I was salaried–and it happened since 2006 when my wife was salaried.
So those without jobs don’t deserve justice?
Except that wages have stagnated since the ’80’s.
Kash good point about different prices and it raises a question in my mind. Maintaining a constant level of employer-provided insurance coverage for health services over these years, which would be no change in benefits from an employee perspective, would imply real compensation cost increases to the employer, correct? Rising real median compensation spending per hour isn’t being driven by real hourly wage increases, so how much of it is driven by rising health care insurance costs that don’t add benefits from an employee’s perspective? (If this is a dumb question, apologies.)
Only if you acknowledge that they probably count double for the ones doing the laying off. The owners get to keep the salaries of the people they lay off, plus the additional productivity of the survivors. They get nothing for their added contribution. They put in the extra hours to avoid being the next on the list. A twofer for the rentier classes.
Lest you imagine this is some lefty hand wringing, it’s not exactly a secret from me and my colleagues at a Fortune 500 tech firm. Or the ones I know personally at others. My employer is getting at least a 30-50% labor cost reduction just since 2008 in the number of people doing extra unpaid overtime. I don’t use the words mandatory overtime anymore – I looked up the law and found out there’s no such thing at this pay grade in my southern anti labor state.
This is a common conversational topic over drinks after hours – how much longer can these “emergency” conditions apply? How many projects have to be upended by unexpected health or marital problems triggered by the long hours?
And more to the point of the blog post: How long are profits expected to expand at the expense of labor costs? Once this becomes a management mantra like outsourcing or supply chain management where does it end? When the CEOs only get to sell to each other?
How are you defining justice ?
-Standard of living ?
-Quality of life ?
-Accumulated wealth ?
It can be as simple as; No.. no job, no paycheck.
Or as complex as; Those three itmes are proportional to what you’re capable of earning.
Or as goofy as; The ditch-digger has the same as the engineer.
I’m sorry – I understand when you talk about “equitable’ that we simply don’t have a shared yardstick, if only because I don’t have a yardstick for that at all. But when you talk about “intrinsic value of the labor,” apart from the location on standard supply/demand curves, which in turn is connected to skill/other-and-possibly-arbitrary-qualification. Now it’s true you can alter the supply with collective bargaining or other governmnet interventions, but how is that “intrinsic,” at least without begging the question?
I’m sorry – I understand when you talk about “equitable’ that we simply don’t have a shared yardstick, if only because I don’t have a yardstick for that at all. But when you talk about “intrinsic value of the labor,” apart from the location on standard supply/demand curves, which in turn is connected to skill/other-and-possibly-arbitrary-qualification. Now it’s true you can alter the supply with collective bargaining or other governmnet interventions, but how is that “intrinsic,” at least without begging the question?
I’m sorry – I understand when you talk about “equitable’ that we simply don’t have a shared yardstick, if only because I don’t have a yardstick for that at all. But when you talk about “intrinsic value of the labor,” apart from the location on standard supply/demand curves, which in turn is connected to skill/other-and-possibly-arbitrary-qualification. Now it’s true you can alter the supply with collective bargaining or other governmnet interventions, but how is that “intrinsic,” at least without begging the question?
Sorry
Where are the deflation vigilantes?
I understand your point.. and also wonder if, “emergrncy conditions” are gonna be the norm now. It’s a valid concern. I lived through some of it in the 1970s.. as both management and labor.. and on a small scale to-date, as a small business owner.
That whole thing is a bit out of the scope of this discussion.. the wage/productivity gap started before, and continued into GOOD times; when skilled labor went to the highest bidder.. management couldn’t FIND enough qualified employees.. heck, even fast-food was paying well over min-wage, just to get kids to show up. I guess that’s the other extreme. The wage/productiviy gap is its own phenom though… albiet “bent” as conditions cycle.
PJR, it’s not a dumb question. It’s the very issue that has taken down a few corporations and forced others to abandon their defined benefit plans and restructure their share of healthcare expenses or lose market share.
That really is the problem isn’t it? But I truly do appreciate your honesty. It has something to do with these crazy things we call fundamental values. And it is clear that as a species we don’t really share them do we?
Its then a question of the relative changes in the various inputs. In manufacturing I contend that the capital input increased, except for inputs of computers which because of the price declines in that sector capital costs declined. Clearly a modern CNC machine tool costs more relative to a hand operated tool of the 1950s. Yes you had machines that bored engine blocks but each machine was custom built for one engine, today you program the machine and it can change on the fly. If the relative input of capital increased compared to the input of labor then one expects the returns on capital to increase relative to the returns on labor.
Interesting obseration MG about rising compensation costs to the employer. I have this nagging suspicion that employee compensation metrics are grossly overstating gains by employees. Hourly wages have stagnated for over 30 years (excepting women’s hourly wages, which have grown). Other than the price, health insurance coverage does not seem to have increased although maybe I’m just wrong about that. Pensions don’t seem to be what they once were. I’m left wondering if the median worker has gained much of anything from those productivity gains over three decades, even if that worker costs more.
SW,
“If human beings are required to do the work then the work has value.”
Hey Dude! Get Real…….sitting on your ass all day pushing a button on a machine may be a “Job,” but just twenty years ago it took hard labor of twenty people to accomplish the same task.
And you do what? You are over generalizing and really if the job were that simple it could be automated. And probably will be. As I said above, increases in productivity due to technology are not limited to manual labor and don’t necessarily result in ‘easier’ work. This is a stereotype to makes uniformed folks in the parasite class feel better about themselves.
The same thing happened from the 1900s through the 1920s. There was a two or three order of magnitude improvement in manufacturing output per unit of labor, and much better handling of information with tabulating machines, telephones, industrial design, efficiency experts and process restructuring. (Read Cheaper by the Dozen for a funny take on the latter two.) Productivity soared, but wages didn’t. That meant much more productive capacity than purchasing capacity, so the bottom dropped out of the economy until Americans united to apply political power to get more purchasing power.
If you look at free market economics, deep depressions are the equilibrium points and they have lots of attractors. Do the math. It’s rather simple. Unless there is a powerful force pumping money from profits to purchasing power, free market economies eventually collapse into a starvation or subsistence black hole. We started to cripple that pump back in the 70s, so less and less of our productivity improvements have been turned into increased purchasing power in the form of higher wages, and now we are stuck in one of the intermediate equilibria on our way to collapse.
I wouldn’t be so hard on day traders. Someone once told me that they fulfilled a useful function.
Labor grows in value when it can be with held. THe fact that there are remaining functions that cannot be automated is a tacit admission by capital that this labor is essential. When you hire a human being to do a task for eight hour a day, you are not simply paying him or her to do the task, you paying him or her for their time.
We are all mortal beings who have a finite amount of time on this earth. The time you spend on the job you will never get back. This time, your time has intrinsic value unrelated to what the business that rented that time plans to ask you to do.
If you go to a rental store and rent a piece of equipment, you pay for that piece of equipment based on its intrinsic value, not how smart or how good you happen to be in employing it. If you hire a human being, a sentient human being, you are taking up their time which has value whether you care to admit it or not.
I would say thet if you included in the graph a statistic representing the increase in profits siphoned off by investors in corporate stocks, you might find a one-to-one correspondence with the losses suffered by labor.
“what was it about the 1980s and 2000s that made it so difficult for workers to reap the fruits of their more productive labor?”
I’ll take ‘Republicans in the White House’ for a thousand, Alec.
Hello!??! Okay, I haven’t pored over the comments, but has no one really mentioned the one thing the 80s and the 2000s have in common, that plainly differentiates them from the 1990? The Party of the President of the U.S.? Do we really think that has nothing to do with the differences in wages v. productivity in the various periods under review here?
TStockman says, “Effective innovation would not only reduce the hours of labor required for a given output but also the quality of skill required (partly as quality control, but also to reduce further the value of the labor…” I believe this is an unwarranted supposition without factual basis. “Effective innovation” does not in and of itself imply labor value. In fact, I think it would be found that any innovation involves implementation costs, a learning curve, and a changed labor skill set. “Effective innovation” does not imply a roll out of “capital” that obviates a skillful labor force. In other words, the means of production do not run themselves. In fact, “effective innovation” has made the workplace more complex. If anyone has ever worked in an office, for example, where computer hardware and software are ‘upgraded’ can attest to the degre of confusion, productivity loss, implementation frustration, etc., knows that change requires education, training, investment in the labor force and that, per se, increases the value of labor instead of ‘dumbing down’ labor. In fact, it is often the case that labor has to figure out how to make “effective innovation” really work when the innovators have missed the mark, which is more often the case than not!
I hope you don’t mind me jumping in here, but unless the rental shops are all fixed in price, your point about the intrinsic value of the rental tool is missing the biggest importance in the debate, that has everything to do with supply and demand – the market will set the price that the rental shop can rent the tool. If there are a lot of shops with the same tools, then the price for rental will be very low. If there is low demand for that tool, it again will rent at a low value. But, if the tool is rare, then the demand will raise the price until supply is increased – which it will be based on the value of the rare tool (which in turn motivates the production and competition with that tool). So, since we are increasing in population and most of the population is at or below the average education and skill, then they are contributing to the problem of over-supply, and as long as there are many willing to take those low wages, then the market will only pay at those wages. If you fix the wages of the unskilled labor at the same level as higher skilled labor, then the skills will drop off, as the market rewards lower skills at a higher rate, so why learn those skills if they are not going to be rewarded?
As much as wishful thinking dreams of everyone making an excellent wage for simply being alive isn’t a natural view. Even in nature, there are clear winners and losers, and the laws of nature operate on similar values of supply and demand toward resources and territory. In other words, life is not fair.
Time is not the same value to an unskilled person that lives for himself and does nothing to benefit others except to contract his time in labor in exchange for pay (which is paid at 100% of the contract in addition to the fees imposed by government to hire that person), as one that creates both for himself and many others through the skills learned and costs of investment that profit in resources and territory. There is no comparison, because the mindsets, habits and behavior are distinctly different.
That is the truth – and how do they say it? Truth does not have an agenda.
And I say this as someone who struggles on the low end of the totem pole. I find greater peace in accepting the objective truth than fighting for ideological norms. I know, because I have tried the other way.
I’d say it’s a mix of several things, but mostly due to an increase in population (in addition to the inclusion of “undocumented workers” that keeps prices low), but add production efficiency, global trade, outsourcing and off-shoring (that benefits those poor countries that many wanted to help because of the imbalance of rich america to poor third-world countries), and a couple of recessions as well as a disaster that drove purchase power (CPI) down, and I think you have a recipe for low wages. I think people unfortunately get hung up on the differences in dollars, but neglect to include all of the factors that go into making the determininations of cause and effect – many just using ad hominem, straw-man and red herring arguments (along with a fair amount of “appealing to spite” fallacy arguments). I think one of the biggest truths that disappears in the debate is that many middle class and poor in America have found their way to the top 25% while there has been an increase into the middle class from the poor, which makes the line appear the same for the middle and poverty class while the numbers for the rich are growing. I believe that the tax reports for next year (if they can stay unchanged for rates) will demonstrate that this is true, as many jobs have been lost and many of the wealthy have lost a fair amount of their At least that’s my observation.
Health care has been skyrocketing, and explains much of the stagnation in wages. And since you can only buy so much health care, it makes sense that as it grows, it will hit the middle class the hardest.
I’d like to see a graph that showed total compensation, along with the portions of compensation devoted to categories such as wages, health care other benefits, and, of course, taxes.
It is not a question of who “deserves” more. I do not believe that a guy sitting at a desk or playing golf most of the day, making one or two very critical decisions per day “deserves” 300 times more money that any of the people who work all day long implementing those decisions – some people do.
The fact is that wealth has been concentrating into the hands of just a few. 400 citizens at the top have more combined wealth than 50 million citizens combined. The effect this has is to destroy our economy. The 50mil have less and less money to split between them, less and less to spend, less and less to provide the demand that businesses exist to meet. Anything as top heavy as our economy is (and continues to grow more and more top heavy) will eventually break at the weakened base or middle and collapse.
Henry Ford said, “We believe in making twenty thousand men prosperous and contented than following the plan of making a few slave drivers in our enterprise multi-millionaires.” He also believed that it was morally wrong for a CEO to make more than 40 times what an average worker made.
Paying workers more (and CEOs less) is actually in the best interest of the companies.
If we can get most companies to follow Henry Ford’s business model above, we can save, stablize and sustain our economy. Ethical Capitalism can Save U.S.
http://bobbyshead.blogspot.com
Most of the posts on this page miss a vital part of this issue. You are treating “labor” as some sort of vague, unidentifiable entity. Labor are people and the sooner you fascistic capitalists realize that the better. If you think there are no consequences to this type of thinking consider what happened to the French aristocracy.
Looking over some of the comments here, brought me to an intersting question, which at first I thought was just a funny quip, but now I am not so sure. Are the Republicans so Anti-Abortion in an effort to flood the market with excess labor pool and decrease wages even further?
The whole GOP agenda seems to be the creation of a corporate governance with an endless supply of cheap labor.
This seems obvious to a tech worker in San Jose who has seen his wages cut in half as he has become part of the outsourcing wave.
Everyday every corporate IT and Bus dev staff team works to move your button pusher jobs overseas. That was 10 years ago. Now my role as business analyst and software manager is movign overseas as well. The corporation is efficent and has no concept of community. Your oversimplification is false and misleading.
It would be interesting to see a third trend on the graph; the % of bottom-line profits corporations have see and see if trends up or down with stagnation in wages.
Floyd,
Your points are well taken, but do not require the reference to religion which in our society has demonstrated no allegiance to morality. Reference to the inadequacy of Ayn Rand’s ideas is equally irrelevan as anyone who adneres to or makes to Rand in support of any human behavior is an egotistical fool or just a fool and not subject to rational argument. The problem with a plea to morality is that that leads to an appeal to emotion and voters who vote emotionally make stupid choices. Otherwise we’d not be having this discussion.
When voters begin to vote on the basis of their own best economic self interest we may return to a better society. That is not an easy task to accomplish, the education of the best economic interest of voters. Americans too often vote on the basis of emotional social issues. and they don’t vote too wisely at that. It requires education and understanding the importance of and the truth of economic self interest. That’s a long way to go in the good old USofA where might makes right, every man for himself and dog eat dog.
You made mention of the French revolution, a topic that I believe holds lessons for elites the world over. But even Robespierre was not hopeful of the likelihood of negotiated resolutions to socio-economic issues. From one of his earlier speeches before the E-G, “When will the people be educated? When they have enough bread to eat, when the rich and the government stop bribing treacherous pens and tongues to deceive them. When will this be? Never.” I tend to agree as I recognize the inclination of the uneducated to frolick in their ignorant bliss until such a time that it becomes less than blissful and even then they’ll blame eah other for their own misery.