Technology Change Not the Culprit in Wages Falling Behind US Productivity Gains

How few times has the lowest tax rate been cut?

I haven't actually looked at whether this is true though.

Pretty simple, really.

And yet. While mega corps (FANG et al) horde cash, and management & bankders gets their cheddar, Joe Average investors are getting screwed, and no one's freaking out.

Maybe you should give the guy you paid to paint your garage a voice in your management of your home.

How can work councils help that.

Nothing will change until the Beveridge condition is restored - more jobs than people that want them.

Union busting, the rise of monopoly power and capital accumulation aren't solely about globalization though.

Most of these reasons do share one salient feature that technology doesn't, however: you can single out individuals who are deliberately making the problem worse.

I tend to agree that globalization plays a significant role. However several of the listed factors aren't directly related to globalization, and have more to do with US culture and domestic economic priorities:

"the race between education and technology"

"the ‘superstar effect’"

"market structure and monopoly power"

"capital accumulation"

Also, globalization has necessarily depended on reducing protectionism. And it's arguably been associated with declining nationalism. In a collective sense. As in, for example, American firms and their employees being loyal to each other. I believe that this sense of nationalistic loyalty peaked in the 40s and early 50s. Reflecting the war effort, of course.

That's not to say there aren't problems, but exaggerating how bad things are makes any argument to fix them less credible.

If you go to the classical economists (Smith, Ricardo, Mill, Marx), you'll find that they tend to discuss both specific classes of goods, and specific factors to the wages of labour.

Of the first, from Smith, generally: commodities, wages, rents, interest, assets (gold and silver), capital (stock), and public goods ("expenses of the sovereign"). These are somewhat scattered about the book, the first six largely in Books 1 & 2, and Book 5 devoted solely to the latter.

I'll turn it over to Smith for the factors in compensation of labour, as he's uncharacteristically direct and brief:

"The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counterbalance a great one in others: first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and, fifthly, the probability or improbability of success in them."

https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...

(An expansion of each of the five elements follows.)

From Ricardo we get the Law of Rent and Iron Law of Wages (Lasalle, Marx, and Engles also discuss this). The first notes that for any productive input whose quantity is fixed, the price will rise to capture all of the generated value. The second notes that wages fall to or below the level of bare subsistence.

The second factor is most distinct for nondifferentiated labour, that is, unskilled, and in particular, in a stagnant or declining economy. Smith describes the circumstances of the latter in terrifying detail in Book 1 Chapter 8, which I strongly recommend reading in full, though the relevant detail begins at: "But it would be otherwise in a country where the funds destined for the maintenance of labour were sensibly decaying..."

https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...

Smith, et al, are classical economists, and their observations were given mathematical rigour and explanation by the marginalists. Effectively, goods producing rents have zero price elasticity, public goods have zero marginal cost, and in the case of wages, there are generally distinct short-term and long-term cost components, a phenomenon which can produce a backwards-bending supply curve. That is, if you reduce a wage rate below subsistence, on a time-worked or piece-work basis, you will get more productivity as labourers work more hours to simply meet their minimum survival requirements. This comes, however, at the cost of long-term capacity: raising of families, rest and recuperation, education, and the like.

Much of the conflict of modern economic life, from a worker-renter's point of view, can be explained by the squeeze of falling wages against rising rents, via numerous mechanisms.

Your observation on who has rightful claim to the surplus value generated by labour (and the role of increased productivity in setting an upper bound to the possible wage component) is the matter explored by Thorstein Veblen, though I need to revisit just exactly where.

For one thing, saying that here "are" 100 software jobs is not the right way to think about a labor market.

You're right that no worker can sustainably be paid more than their work is worth to the employer. That is an upper bound on their pay.

Similarly, no worker will accept less in pay than they can get elsewhere. That puts a lower bound on their pay.

And so on.

The science that deals with this is called "Microeconomics", or sometimes, and more descriptively "Price Theory".

There is an enormous amount written about it, and knowledge of it gives you a hugely useful tool to understand the world. I wish I had a great introductory book to recommend, but I don't :(

The only reason you believe the people at the top don't want to share is because of centuries of thinking that has lead you to see the structure of the world in a way that this is useful. Summing up centuries of thought into a single phrase, and then throwing out the data and ideas that got you there is...risk at best.

When people spend/invest money, they are sharing.

https://www.epi.org/publication/ceo-pay-continues-to-rise/

In most companies I've worked, the CEO's mostly just made simple or random choices based on what data people under them were producing. The companies with established models could mostly run on autopilot. They have at times in between senior management or executives. There's also been little evidence their performance is tied to their pay much outside financial manipulations with many taking golden parachutes on way out of companies doing poorly. Add in the interlocking boards effect on compensation grants, you have every reason to believe the pay gap is an artificial construct by a privileged few to further enrich themselves at the expense of the many. These other explanations are either of little effect or smoke screens to keep people from attacking the root causes of what their doing.

It's not like they hide it when talking among themselves that this is a system designed for the exclusive benefit of the rich as much as they can make it. See the leaked Citigroup memos about the plutonomy and such that they tried to take off the Internet.

https://politicalgates.blogspot.com/2011/12/citigroup-pluton...

Particularly relevant is what's in report No 3 here showing economic inequality wasn't natural but artificial by folks like their clients:

https://rwer.wordpress.com/2012/03/14/the-plutonomy-reports/

Wages are set by what people are willing to accept when compared with what people are willing to pay to perform a function. Wages really aren't related to productivity, except that increased productivity limits the number of hires.

In the same way that you most likely don't share all your income with others, employers do not share all their income with workers.

Wages did stagnate for some time, but now they're growing again (http://money.cnn.com/2018/02/02/news/economy/january-jobs-re...).

I do think that automation/increased productivity plays a part if you automate things out where more people are now capable of doing a particular job it will deflate the wage of that role since there is a greater supply that can now perform that role.

Obviously there are myriad ways of obfuscating what's really happening, and blaming technology is one of them.

EDIT: The Jevons Paradox, thank you belated memory cells.

There's a couple research papers from the NBER that I think show this has been happening since the early 90's.

http://www.nber.org/papers/w18334.pdf

The graphs of for the jobless recoveries are particularly telling. One thing the authors suggest is that before the 90's after a recession we recovered the jobs that were lost due to the slowdown, but after the 90's companies could outsource or automate during the recession to deal with the economic pressures, so when the economy recovered those jobs weren't around to come back to.

http://www.nber.org/papers/w18901.pdf From the conclusion

> In particular, we have argued that after two decades of growth in the demand for occupations high in cognitive tasks, the US economy reversed and experienced a decline in the demand for such skills. The demand for cognitive tasks was to a large extent the motor of the US labor market prior to 2000. Once this motor reversed, the employment rate in the US economy started to contract. As we have emphasized, while this demand for cognitive tasks directly effects mainly high skilled workers, we have provided evidence that it has indirectly affected lower skill workers by pushing them out of jobs that have been taken up by higher skilled worker displaced from cognitive occupations. This has resulted in high growth in employment in low skilled manual jobs with declining wages in those occupations, and has pushed many low skill individual's out of the labor market.

Moreover, the early 90's are about the same time we see a rise in disability benefits, especially for children. There's a big increase that starts in the early 90's. Some of this is probably from the welfare reform that happened around that time, but http://apps.npr.org/unfit-for-work/ has some pretty interesting insights and that was written in 2011. They end the article with

> Somewhere around 30 years ago, the economy started changing in some fundamental ways. There are now millions of Americans who do not have the skills or education to make it in this country.

And as you mentioned, we don't have any programs to bridge that gap between low and high skilled jobs. It used to be that you could work your way up, training on the job and gaining new skills. Instead we turn to formal training or education, but those have capital costs that create a barrier of entry into the higher paid labor market. If you're already working one or more low income jobs then it's not just the monetary but also the time capital required to retrain. Either you spend most of your time working and training/studying or you take the opportunity cost of quitting your job in the hopes of improving your skills to find a new one. It seems many are taking a third route of going to a doctor and getting on disability benefits, and while I can't find it I read an article a while ago where one of the doctors straight up said that they include education in the decision, seeing some people as unemployable with their level of education. I think doctors making that judgement call is it's own discussion, but just furthers the point.

Then you've got companies like Dollar General betting on America having a "permanent underclass", their own words: https://www.google.com/search?q=dollar+general+permanent+und...

I think we're only just realizing this now, but I pretty much agree with your sentiment that we're not ready to handle this. Even if we could fix the issues with cheap foreign and domestic labor that's not going to stop automation and IMO we're already in the post-automation future, just with globalization providing a similar effect.

> might eventually be willing to subsidize something like a universal basic income.

I'm kinda interested if there's any studies that use disability benefits as a kind of natural experiment for basic income since in a way it's already a form of UBI. There's some obvious differences, but one of the assumptions of SSDI is that you're incapable of working and that's similar to one of the criticisms of UBI that it would incentivize people not to work, which could have negative social consequences. I'm sure there's something we could learn from looking at people on disability benefits about that.

This might lead to a decreased quality of life even for those harvestingthe net gain.

It's a delicate balance.

I don't know about you, but my techno-utopian fantasy involves everyone living off the labor of robots rather than struggling to house and feed themselves and their families because the elites no longer need the labor they can provide.

Hasn’t their pay expanded by thousands of percent while workers wages haven’t expanded at all in 40 years? Why is asking for more money now considered such a sin?

It’s argued very frequently that the CPI vastly underestimates inflation by not including things like rent and healthcare, so workers wages are dropping if anything.

What makes companies entitled to think they don’t have to address this? Why can they buy technology that delivers higher results, not raise wages, and then wind up lowering wages?

Eventually there will be a “#metoo” moment in business and many, many people will find themselves blacklisted for years for what is now being called “economic hate crimes”.

Really it's not automation that's destroying the middle class. It's information, a doctor can in theory look up symptoms without sending you to a specialist. In the case of information asymmetry the side with more information tends to collect more value and it's not workers who have gained the most information.

Why shouldn't workers, either individually, as a union, a trade guild, or society as a whole, attempt to negotiate higher wages when productivity increases make more wealth available for distribution?

I think the first half of your first sentence shows... something. A bias? A misconception? I think it appears most strongly in the word "granted".

Technology isn't like getting buffs in a video game. Workers aren't just "granted" new tools. They have to learn how to use them. In doing so, the workers become more productive, and therefore more valuable.

A new tool improves productivity. That productivity creates more money. That money needs - deserves - to get shared in three different directions. Some goes to the tool maker. Some goes to the tool owner (the one who paid to get the tool). And some goes to the workers who use the tool. It seems to me that leaving any of the three out is unjust.

Leaving anybody out of the gains is also likely to lead to fewer new tools being created and put into use, which means lower productivity gains, which means a lower level for the economy as a whole, which means lower standards of living.

The reason is, the same reason that everything else in society works: we all have a stake in this, because if society is better off, we are all better off. But, what if when more is produced, I don't get more, but now you have more to push housing prices in my neighborhood out of my reach?

Society, and especially free-markets, rely on widespread support. A society of 50% thieves will collapse; a society of 10% thieves will probably not do much better. You need broad consensus to maintain the conditions necessary for a free market and innovation. You don't get that broad consensus, if all the gains in productivity go to the top.

We shouldn't expect that a productivity improvement purely due to capital should result in higher real worker compensation [1]. If the lawnomatic can mow one lawn per hour, and an upgrade permits it to mow two lawns per hour, then the labor of pressing its activation button isn't somehow more valuable.

[1] Technically, it should result in employers bidding more for workers, but in a way that's far less than proportional to the total gain in output.

The alternative, which sadly has been taken all too often, is that management pockets that difference.

Employees are not merely selling time (actually that’s the most precious a living person has) but their ability to turn it - through the mastering of technology - into valuable goods.

That they’re not entitled to a fair share, but just to whatever was agreed back in the day, without demonstrable acts of servile devotion, reeks of... dunno, feudalism?

One day, I win a thousand bucks in the lottery and buy a couple of sewing machines for us to use. We can now make, oh, fifty flowers in the time it took us to make one.

Let's assume that the demand for artificial flowers is far higher than we can fulfill. We could work as many hours as we used to and start selling fifty times as many flowers. But instead we work a little less and sell thirty times as many. We're still we're making a lot more money than we used to.

Now. Since I bought the sewing machines with my own money, clearly I should be the one reaping all of the benefits of this new order. I'll take all the money and pay you exactly the same amount of money you were making when we were both sewing flowers by hand. So I'm getting about fifty-nine times as much as you are.

"Hey, Egypt," you say. "Thanks to those sewing machines, I'm creating a lot more value than I used to. Maybe I should be getting, I dunno, twice what I used to get? Or a hell of a lot more?"

And I sneer down at you from atop my golden toilet. "Your attitude reeks of entitlement," I say. "Get back to your sewing machine, Thenews."

Three weeks later, you're fired, and replaced by a guy living in a tent under the Interstate who'll make flowers for half of what you were paying. It's my sewing machines, after all.

It's just a coincidence that corporate profits skyrocketed while wages stagnated?

Errr - doesn't it come from the people buying the Assassin's Creed games? That particularly series earns hundreds of millions of dollars each game, and at least some of that value is created by the engineers modeling the character's hair.

why draw the line at the special effects? why not just assert that movies and entertainment are a "net negative"?

Agriculture and manufacturing are the drivers of economic growth. Without them there's no point in having all those other industries.

I agree that making “things” that people “need” is a lot different though, and that’s reflected in their markets.