Heiner Flassbeck… a great economist speaks on wage share
At the 9:40 minute point of this video, Heiner Flassbeck says…
“… But even people who are asking for more expansionary fiscal policies like Larry Summers or Paul Krugman, they are not talking about intervention in the labor market, but this is what is absolutely needed because there is the imbalance. It has nothing to do with the market economy.”
I agree that economists focus too much on fiscal solutions. In my opinion, the real problem is low labor share, which expansionary fiscal policy has no guarantee to solve.
He goes on to say that economists are living in a fiction that the economy is a result of normal market processes. He points to capital’s dominance over labor as the source disrupting a normal market.
Between the 6 and 7 minute points, he says that we need to reinstate the rule that wages rise with productivity. Yet, he says something important just before the interviewer changed the subject (6:45 point). He said that if we reinstate that rule now, the wage share (labor share) will be stuck at its low level. I presume he would have gone on to say that he wants wages to rise a bit faster than productivity in order to raise labor share back up.
It just goes back to the equation of labor share.
labor share = real wages/productivity
This seems to jibe with what Robert Reich has been saying for years, at least the ‘can’t fix it by fiscal means’ part. Reich promotes using policy, including the tax code, as was done in the 1930’s. Am I understanding your point correctly on this?
Hi Sandi,
Yes, you are understanding.
Taxes are limited in their ability to raise labor share. All you do is shift overall profit rates downward, but labor share stays the same. So effective demand does not change.
Fiscal policy does not have any effect on labor share.
Some policies to aid labor share relate to minimum wages, union power and the like to give labor more power.
Thanks, Edward. I see what you mean about taxes and labor share. Reich also strongly believes workers have lost all clout with the death of the unions, but I’m not sure how we could get back to what it was in the 50s and 60s, since the economy has shifted more to services. SEIU is a start, but just the logistics of organizing a work force that is often transient and/or part time, is so much harder than walking into a factory with 250+ people at a time RIGHT THERE, ready to band together.
It doesn’t help that we keep being hit over the head with “global economy” and “we can take your job and send it to bumb%uck Egypt and leave you spinning in the wind”, daily reminders.
I surely don’t know what the answers are, other than we have to find a way to form a cohesive counter offensive to the massive power of capital.