Average annual wages in the United States for was $63,000 for the most recent year available.[1] Average annual hours worked was 1,779 per year.[2] That implies an average wage of $35/hour.
That makes more sense. But keep in mind that only 2.3% of hourly workers make minimum wage.[1] It's not really fair to compare productivity (a mean) or even median output to wages at the second percentile.
It's an interesting question in its own right. Do the very lowest paid people in the economy have it better or worse than 50 years ago. I don't know the full answer to that question, but I do know that in 1968 about 5% of American households didn't have full indoor plumbing.[2] Just based on that datum, I'd much rather trade places with a very poor American in 2020 than 1968.
When I was in the US, I saw someone offering free phones to the unemployed (Obama phone). Food stamps being used. FEMA given new houses to people left homeless by hurricane Michael.
I even met people whose diet consisted mainly of expired food. They had to fish it out of dumpsters, which wasn't nice. But they had free food!
That makes sense, but why would productivity gains be equally applied across all wage levels? You'd naturally expect it to be unequal based on the productivity gains in specific job functions.
As noted in your first link, average wage is misleading because the high end is incomprehensibly large (and is where most growth has taken place) and that skews the result.
>The wage distribution is right-skewed; the majority of people earn less than the average wage. For an alternative measure, the median household income uses median instead of average.
Unfortunately I'm having a hard time finding the median number of annual hours worked. But using the average hours worked, that puts the median worker at $20/hr.
Obviously not perfect unless we can get the median hours worked.
Also, like other commenters have said, I don't think anyone has ever claimed that the bulk of productivity gains will go equally to the minimum wage as the median wage, since the latter is usually pretty low leverage work in general.
"Average" anything in populations with large ranges is a terrible, terrible measure. As the joke goes, Bill Gates walks into a bar, and on average everyone in the bar is a millionaire.
Median is the appropriate statistic for such cases.
Along these lines, here's a graph from the Federal Reserve's data service which plots median household income in contrast to GDP per household over time.
Note the increasing spread between GDP/household and median income. That's the US's entire socioeconomic problem--from rising consumer debt levels, rising deaths of despair, and the rise of reactionary politics--shown in one chart. The median person is falling behind.
Yeah, I actually agree. But the article is directly citing productivity, which by definition is the average economic output per hour worked.
It's fine if you want to focus on median wages, but at the same time you need to compare against the median worker's economic output- not aggregate productivity. Otherwise you're just comparing apples to oranges.
Isn't this only first-order labor? If the butcher needs to pay more for labor as well, you're still experiencing an increase in price that's labor-related, just hidden.
Once you get away from point of service, I think two things kick in that make it really unlikely that any stage before it would substantially increase the % that goes to labour costs:
1) economies of scale, factory farming employs very few people per pound of meat produced, having been subject to a lot of automation. Likewise, supply chain areas like storage and shipping move a lot of product per employee.
2) 'butchers' and similar jobs are relatively high skill and likely pay above minimum wage anyways. They also have better economies of scale. But at any rate, it's unlikely professional butchers are particularly involved in producing meat for fast food burgers and likely 1 or 2 low wage employees in a factory are doing all the manual labour involved in producing meat for hundreds of burgers.
At any rate, I don't think the null hypothesis can really be that every level of the supply chain has the same level of labour costs.
I think this is natural, as you're always sub-dividing the remaining 66-75% of the pie. Even if you assume exponential decay of labor as a percentage of the remaining cost, it can still add 5-10%, which is a meaningful fraction. I don't strictly disagree with the original post regarding labor not being the lion-share of many businesses.
As a nit to my original post, butchers was more meant to be representative of a class of service that is relied on by consumer-level providers. I think we can agree that it is fair to assume there are more than just first-order workers who make less than $24 a hour in most supply chains these days.
This points to what I was going to say. The whole point of efficiency gains in a company is to pay less for your resources (in this case labor) for a given amount of output. Ideally what we would see, however, is a reduction in prices as a result that more than compensates for the reduction in pay. Thus, across the economy, the general theme would be more output for a given amount of work. I have no idea how that metric tracks, though, but the cheeseburger and shake I guess is one way of asking that question.
Am I agreeing with you then? You didn't make your position very clear. I'm just stating what I think about wage inequality and class gaps.
If you're asking for an actual number of the price of a Cheeseburger and a Shake? I don't know, but it may be a number that's ultimately better for society?
I was asking a simple question. There are people here who know economics better than I, so I wanted to know what would happen. People just assumed I don't want others to have a good life when that's so far from the truth.
In denmark, with significant benefits and high wage and all sorts of wonderful pro worker and pro average person systems, a big mac costs $0.35 more than the average big mac.
Is there any evidence that whole-workforce productivity applies equally to minimum wage jobs? If not, the claim seems unsustainable.
Completely anecdotally, improvements in labor productivity due to automation (etc) are less likely to be impactful in jobs like waiting tables, delivering newspapers or flipping hamburgers.
That anecdotal evidence is backed by research that shows that service sector productivity tends to lag other sectors significantly.
It absolutely does not. Productivity gains over the past 50 years have been disproportionately concentrated in higher skilled positions (who earn salaries, not wages). If you feel like reading a 66 page extremely dry analysis of the relationship between compensation and productivity then here you go. https://www.nber.org/papers/w24165.pdf
A good follow-on question might be, do we expect more from low-wage employees now than we did then?
When I was a teenager, food service proved to be a much more complicated job than I anticipated it to be. My first tech jobs paid better (even though an internship would have paid more), and felt simpler. If only because I'd spread out the effort of learning the skills over 8 years instead of 3 months.
I had to pay my way through college, like a few of my friends, but I was struggling to juggle the two and trying to grow up at the same time.
The on-campus tech job paid about 10% more, day 1, than any of my friends were making. So I used the higher pay and all the tricks my roommates taught be for frugal living and cut back my hours about 25%.
I tried not to brag about it. I even felt a little guilty about how hard they were busting their asses, while I had a job where I could automate the tedious bits myself, and once I was not low man on the totempole I could delegate other parts.
PSA: Be nice to your food service staff. And your janitors. Instead of thanking god it's them instead of you, be grateful someone else took that shit job so you don't have to cook and clean up after yourself.
I too was surprised at how complicated my first food service job was. there are so many opportunities to mess up in every minute of peak hours. at the same time, I almost miss it. if food service paid the same as software dev, I might seriously consider switching back. as stressful as it was, there was a sense of closure at the end of every shift. if I messed something up, I would either hear about it by the end of the day, or it just wouldn't matter. in software dev, I can get bitten today by a poor design decision I made last year. nothing is ever fixed or finished; the bugs just haven't been filed yet.
I worked at Subway for 6 years while earning my CS degree.
I sometimes miss the mindless simplicity of the work. I miss knowing exactly what I need to be doing every day.
But I certainly don't miss with dealing with the general public, where a very vocal minority has decided that it is socially acceptable to yell at service workers. It's even worse when it's their own mistake, like they ask for mustard when they meant honey mustard, and somehow I'M the idiot for not knowing which one they meant.
Or they ask for "light mayo" and I ask them to clarify if they meant a small amount of mayo, or the low-fat mayo, and they snap an answer back at me as if I was being a smart-ass. The answers were close to 50/50 by the way.
Damn maybe I don't miss it after all. I could go on for hours about how shitty some customers can be.
> But I certainly don't miss with dealing with the general public, where a very vocal minority has decided that it is socially acceptable to yell at service workers. It's even worse when it's their own mistake, like they ask for mustard when they meant honey mustard, and somehow I'M the idiot for not knowing which one they meant.
yeah I don't really miss stuff like that. although as I've gotten older, I've started to appreciate people who are overtly hostile. at least you know where they stand. I find it much harder to gauge people's intentions in white-collar land.
Why would we tie minimum wage to worker productivity OR inflation?
What is the minimum wage trying to accomplish in the first place?
It seems obvious to me that we have to index it to the living wage instead.
A full-time job needs to cover: one half of a 2-bedroom apartment in the outskirts of town, plus food, bills, and basic medical expenses. If it doesn't cover this, then this person is going to rely on government programs.
And if the government programs aren't there, they'll be coming home each night after a full day of work and watching their kid get skinnier, seeing their CEO collect multimillion dollar bonuses in the news, and you can be damn sure they won't stand for it. They'd unionize, protest, and demand higher compensation.
Our social safety nets are an important part of our society, but when they're required and used by full-time employees, it's something of a taxpayer subsidy for the corporations who can now pay their employees less than what's required to live.
And if a job can't be done profitably for a living wage, we need to let that job go. Automate it, outsource it, let the companies that depend on this exploitative labor pivot to new business models, or let them wither and die. The jobs are going to leave eventually anyway - we might as well accelerate the push toward a modern labor economy that's already underway. We can funnel the productivity gains from automation into education, to allow the displaced a chance to retool and learn a new skill, and to bulk up our social safety nets for those who are too old to do so.
Smart-but-lazy employees are interested in efficiency, and will work uncharacteristically hard in order to achieve it.
Bosses and owners are only interested if there's something in it for them. As in does it increase our output without a proportional increase in costs. The bigger the gap the more social capital I will burn on making that change (including, but not limited to, fucking over my loyal employees by replacing half of them with a machine, or imports).
We would have barely any of those productivity gains if they didn't also lower the cost of labor per item. So this number is a largely hypothetical. And perhaps a little unhealthy to dwell on.
Conversely, though, if minimum wage had kept pace with inflation, we might see higher productivity today because process people would have had the ammunition to push for more and bigger improvements to production and overhead costs. New equipment would be rolled out sooner while prices were still high, making a steeper adoption curve and accelerating R&D expenditure.
Still, it would be better if management did not try to keep 99% of every dollar saved. We could easily see a world where, instead of the $12/hr we should have simply to maintain the spirit of the minimum wage as it was conceived, everybody had Seattle's $15/hr minimum wage and big cities were trying to legislate for $20.
Because you enjoy it anyway? Because you believe it brings you closer to god? Because you feel it drives you towards a level of mastery you have not yet otherwise achieved? Because you feel bad for the script having to do nothing but meaningless work?
There are all kinds of things in life that contemporary culture encourages us to stop doing and instead pay someone else to do on our behalf. While division of labor is almost certainly a net gain for human comfort and quality of life, that doesn't mean it's always the appropriate thing to do.
This is this same sort of group that would say "trickle down economics doesn't work." It's funny they'd expect productivity gains to trickle down to wages.
Productivity is a ceiling on wages; once wages raise beyond a certain point, the company will take a loss, even after passing down the cost of labor to customers.
Wages not keeping up with productivity gains isn't just on the low end. Seeing how well they tracked before 1970, there was an overall labor shortage. Around 1970, that changed, and there was more labor than the market needed, so wages were kept low enough that it's cheaper to pay someone minimum wage to take your order than to install an order kiosk.
I think this a a demonstration that trickle-down economics doesn't work, because additional capital injected into a capitalist system tends to be captured by the capital at the top. Rationally, you would expect productivity gains to be captured disproportionately at the point where the gain occurs, on the assembly line, not back up through the hierarchy. But because of the rich-get-richer mathematics of capital, those gains tend to get sucked up to the wealthiest tier in the corporate structure.
But do productivity gains occur on the assembly line in the first place? I would guess that people today are about as good at working on an assembly line as they were 50 years ago, and we're more productive only because of capital improvements in machinery and infrastructure.
That's not to say we shouldn't work to improve the average worker's wealth and quality of life, of course! I'm all in favor. But it's not a matter of gains getting "sucked up" from where they naturally would have gone; recent gains in manufacturing productivity just aren't at the individual level in the first place.
That "machinery and infrastructure" is on the assembly line, not in the C-suite. It is literally there to make the assembly line workers more productive, so it takes fewer of them to do the same work. Now, you can say that the workers contributed nothing to the improvement, so why should they benefit? But the system is set up so they can't contribute improvement---they can't accumulate the capital it would take to upgrade the machinery and infrastructure because their wages are minimal, and there's no mechanism in place for them to capture the benefits if they could. Sure, there are token rewards for assembly line improvements, but those kinds of sporadic rewards are generally minuscule compared to the long-term benefit realized by the company.
I agree with what you're saying, but I think it's inevitable. The system is set up that way as an inevitable consequence of modern technology; automation and economies of scale are simply better at producing valuable things, so much better that an individual worker with no capital can't compete. We can change who has access to capital or reallocate the benefits of capital, but we can't change the fundamental problem that capital is required to get anything done under modern technological conditions. The most dedicated shopkeeper on the planet couldn't match Amazon's capital-intensive delivery network, nor could the best machinist on the planet make a better washing machine than Whirlpool's capital-intensive assembly line.
It's inevitable only if we decline to regulate capital. Just as it's also inevitable that a speeding truck will crash, unless the driver puts on the brakes at some point. There is nothing in the laws of physics that dictates that our financial system must be as it is. It is the result of our collective choices, and we can change it when it becomes in our best collective interest to do so.
The fundamental problem is, if you need a factory with 100 workers in order to effectively manufacture anything, then the ability to innovate in manufacturing is limited to groups who have sufficient capital to direct the efforts of 100 people.
There are of course different ways to organize that capital. Capital can be owned by rich people, by corporate firms, by the government, by worker collectives. But it's still a finite resource. As a matter of mathematical inequality, there's no way to give everyone the power to direct a large factory.
Sure. But there's a wide range between the concentration of capital we have now, and the notion of it all being somehow distributed equally. It's not so much about giving capital to workers, it's more about retarding the natural flow of capital to itself. If the economy were only made up of 100-person factories, then there might be enough competition and experimentation that more capital would find its way to innovation and labor, rather than being drawn to large concentrations of wealth. I'm not saying we need to go to that extreme, but there is much room for progress in that direction.
Looking farther into the future, with AI and robotic labor, it's quite possible that everyone would have the capital to direct a large factory. As it stands now, it appears likely that any such robotic future would be owned almost exclusively by a tiny fraction of humanity.
Isn't that what Lean, Six Sigma, and all those processes were about originally? Everybody working to improve their productivity, going all the way down to looking at what workers on the line are doing? I'd expect that in the last 50 years we actually have gotten better at sequencing assembly-line work, and improving worker productivity through better techniques.
It is, and I'd guess that the companies who've used such processes are disproportionately likely to be the ones paying employees better than in the 70s. It's my understanding that nobody on the GE assembly lines makes close to minimum wage.
I'm not sure what you mean by "gains getting sucked up from where they naturally would have gone". If you have a capitalist economy where:
- productive output increases
- wages remain the same
- the length of the working day remains the same
then you have gains accruing to the capitalists and not the workers. (In the case where wages also increase but at a lower rate than productive output, gains are accruing to both capital and labor but disproportionately so to capital)
I never said trickle-down economics work. I just found it ironic that the sort of group would would normally claim it doesn't work completely ignored that with. Basically, if trick-down economics doesn't work, why would you expect productivity gains to trickle down?
Maybe I’m wrong but what is the causal link between productivity and wages, especially minimum wage?
I always thought that cost of living dictated wages and the so-called wage stagnation was due to relative lack of inflation for basic living expenses over the past 20 years.
Also the past 20 years have seen a relative large influx of immigration compared to the previous 20 years. Increasing the competition between workers and would in turn lowering wages, at least according to supply/demand forces. This effect would be especially pronounced for minimum wage workers but with the expansion of the H1B program it will soon be observed for high income tech workers as well.
I don't think there is. This is mostly political in that businesses ought to be keeping up wages because that's the right thing to do. If the supply of labor is such that they always have access to lower-paid workers though, there's no real obligation to increase pay.
This is when minimum wage should come in, and this would be an argument for increasing minimum wage to that end, but businesses themselves can just ignore these kinds of arguments. Certain benevolent PR acts run contrary to this where they do increase wages because it's the right thing to do.
There's a little more to preventing real wage erosion than it simply being the right thing to do from a humanitarian perspective.
The interests of individual firms are not aligned with the interests of the broader economy. It's in the interest of every firm to pay its workers as little as possible, but it's in the interest of the broader economy that most people can afford to buy goods and services. Every employee's wage is ultimately some other firm's income; keeping the game going requires that enough people are paid enough money to be able to spend it on things other than absolute essentials.
Even minimum wage workers have to pay for the basic necessities of life at prices that are largely set on the basis of what the median worker can afford. If minimum wages erode, minimum wage workers can't afford to live. This is a both a humanitarian concern and an economic problem because starving people don't make good employees, and people who don't have money can't buy goods and services from other firms. Every person who is pushed out of the economy in this way is an economic loss as they are no longer contributing to economic demand or producing goods/services with their own hands.
In a society with a social safety net, under-paid workers are also a cost to government as they will not pay taxes and will be due social assistance payments/transfers to help cover their costs for food and shelter. Further, underpaid workers may also pose a crime problem (in part because starving people will steal food), which imposes direct costs on crime victims and costs to government for police, prosecution, and corrections.
Underpaying workers benefits firms that do it, but the practice harms the overall economy and imposes externalities on others. Preventing this is why minimum wage laws exist and should keep up with the cost of living.
> In a society with a social safety net, under-paid workers are also a cost to government as they will not pay taxes and will be due social assistance payments/transfers to help cover their costs for food and shelter.
Social safety nets are typically paid for via progressive taxation, the burden for which falls on the rich. In the alternative, the employer covers that cost and passes it on to buyers in the form of higher prices. Higher prices affect rich and poor equally. There's arguably social value in having the government pay for that safety net: and it's lower prices for lower and middle class consumers.
I don’t see how increasing wages with productivity is the “right thing to do.” Workers have never been paid for the value of what they produced, they have always been paid for the value of their skills. Too far of a deviation from this basic model will likely have disastrous unintended effects.
If they are being paid enough to live I don’t see anything malicious. If people want a higher paying job, they should learn a more coveted skill.
There isn't a causal link. That's why we have minimum wage laws. The idea is that rather than paying people what we can get away with, we pay them what they are worth to us.
If productivity improves, but wages are indexed only to inflation, then the rich get richer and the poor at best stay the same. They produce more but don't see their lives get better. In a country that has produced so much additional wealth, it would be nice if the people who produce it became themselves better off, rather than have the gains concentrate in a smaller and smaller minority.
The minimum wage doesn't just stagnate. It's not inflation-indexed, so inflation eats into it: it hasn't increased since 2009, and even though we're often below the Fed's target rate, inflation has still reduced the value of that by 20%. That suggests it's time to raise it, and the $24/hour figure helps put the quantity into context. It makes a $15/hour wage seem very doable, since it's less than half of the productivity increase.
Well, while it's important that the minimum wage is $24/hr (or $15/hr), none of these results tell us whether the better way to do that is to mandate that employers pay that full wage, or for the government to fill in the blanks with a UBI/NIT funded by progressive taxation.
Progressive taxation would mean that the subsidy comes from the people making the most money. The goal of a UBI is to decouple basic living from employment, giving employees more leverage to negotiate pay.
But why aren't they paying a living wage in the first place, a wage that they were paying in the past if not for inflation?
And wouldn't the cost of the subsidy mainly be spread across the upper end of the middle class and not the employers, making it be a net benefit for the employers?
Walmart for instance already has a huge emphasis on setting their employees up with welfare and using that to pay them a below living wage, why would expanding that system convince employers to pay more?
> But why aren't they paying a living wage in the first place, a wage that they were paying in the past if not for inflation?
Because the market rate for labor doesn't always work out to equal a "living wage". Markets are remarkably good at bringing down the price of goods & services, but that necessarily means that they also bring down the price of labor, which is an input. While this is good for most people, it's obviously less good for those workers that are engaged in low leverage work where net-productivity hasn't changed. As a society, we should help those workers via welfare.
> we'd see the consumer price index dropping. That's not what's happened.
Not for all goods & services. The consumer price index has been falling for most goods & services with the notable exception of healthcare, housing, education, and (to a lesser degree) food.
The only way to prove that “market forces do not reduce prices” is if all goods & services are provisioned through purely market forces, and the CPI still increases. But not all goods & services are provisioned through purely market forces.
The price of food in particular is largely dictated by the price of low wage labor, and minimum wage laws bring that up, despite productivity improvements elsewhere in the supply chain. In other words, the consumer price index for food could drop if the cost of labor wasn't constrained.
> Most of the structures of UBI I've seen seem like a massive redistribution scheme to the wealthy.
Only true for landlords, but that's because the supply of housing is artificially constrained by zoning regulations. If we fix that, then this becomes less true.
Yes, some sub indices have gone up, others have gone down. That doesn't change the fact that _overall_ the CPI has gone up over time. Wages have been having an inverse relationship with prices overall. This is not a case of "prices are cheaper so the wages are less too".
> The only way to prove that “market forces do not reduce prices”
I'm not sure why you're putting in quotes something I didn't say.
> Only true for landlords, but that's because the supply of housing is artificially constrained by zoning regulations. If we fix that, then this becomes less true.
No it's true for all employers that would have had to pay a living wage and now don't because the middle class will subsidize their labor costs.
> Yes, some sub indices have gone up, others have gone down. That doesn't change the fact that _overall_ the CPI has gone up over time. Wages have been having an inverse relationship with prices overall. This is not a case of "prices are cheaper so the wages are less too".
First of all, wages have not universally been in an inverse relationship with price. For example, the median wage has gone up, in real terms, no matter which inflation index you use -> https://twitter.com/Noahpinion/status/1307793622369103872
Second of all, the minimum wage has absolutely increased in most of the US, via state and local minimum wage laws -> https://news.ycombinator.com/item?id=24733559. This is reflected in the urban price of food (CPI-U), which is comparatively more sensitive to labor prices, as an input. In other words the argument isn't "prices are cheaper so the wages are less too", it's "wages are higher, so are the prices". While you may be correct that the minimum wage increases are not always sufficient to outpace overall CPI, they more than outpace CPI for food (less labor), which is why the CPI for food has moderately increased once you include labor.
The goods & services for which CPI has dramatically increased have very little to do with low-wage labor (for now), and the root causes are more sector-specific (zoning, guaranteed loans, lack of price transparency, lack of supply etc)
> I'm not sure why you're putting in quotes something I didn't say.
I apologize, I was paraphrasing. That said, that was essentially your assertion: that if markets do actually bring down prices, then the CPI should have fallen. But that presupposes that all goods & services are delivered purely through unfettered markets, which is not the case.
> No it's true for all employers that would have had to pay a living wage and now don't because the middle class will subsidize their labor costs.
No matter what, the employer never pays that living wage. It's either passed on to the consumer in the form of price increases, or it's paid for by society through subsidy.
I've found it helpful to visualize what this looks like with a concrete example:
Imagine a pizza maker's market value is (say) $5/hour. They are able to produce (for simplicity's sake) 5 pizza's per hour, or $1/pizza. Including other operating costs + 3-5% profit margin (that's the average for most restaurants), let's say that the pizza sells for $5. Thus the pizza maker can expect to earn $40/day, on the market. Suppose, due to rising rents and healthcare costs, the "livable minimum wage" should be $15/hour, or $120/day. There are 2 ways to guarantee this:
A) The government deposits an extra $80 to the worker, allowing them to make $120 that day. They can buy a pizza for $5, which is about 4% of their daily wage.
B) The government mandates a minimum wage of $15/hour, which means that the labor portion of the pizza cost goes up from $1 to $3 per pizza (at the same rate of 5 pizzas per hour). The pizza now sells for $7 so that the shop doesn't go out of business. The worker makes $120/day, and can buy a pizza for $7, which is about 6% of their daily wage.
Notice that in (B), the worker is actually worse off, even though they have the same amount of money in their pocket. The worker has to pay a higher percentage of their pay to afford to eat, but this $2 extra means absolutely nothing to a millionaire, it's pennies to a rich person. In scenario (A), the worker is better off, and the welfare system that sustains it can be funded through progressive taxes, which targets rich people.
> First of all, wages have not universally been in an inverse relationship with price....
First off, don't cite unsourced one-off tweets if you want to be taken seriously.
Secondly, yes, wages have gone up... since WWII. This entire discussion has been about the stagnation of median wages since the late 70s.
> But that presupposes that all goods & services are delivered purely through unfettered markets, which is not the case.
In no case are we talking about unfettered markets, so that has no bearing here. We're talking about the regulatory env of today contrasted with a UBI which is far from unfettered markets.
> No matter what, the employer never pays that living wage....
Continuing to follow that logic nobody pays for anything. "Employers don't really pay for labor" is an incredibly hot take I wasn't expecting to defend against today. If a business transitions from unprofitable to profitable by slashing wages, and sticks that profit in the bank, where did that money come from?
Wages are a function of the scarcity of labor. Advances that increase the productivity of workers often also makes it easier to do those jobs, hence a larger labor supply that pushes the price of labor downwards.
This assumes an unconstrained "market" for the exchange of labor and wages, just as the claim that "prices are a function of the scarcity of goods" assumes an unconstrained "market" for the exchanges of goods and money.
But this is not the only model for economic exchanges of labor, goods and money. The Romans, for example, did not use market pricing, but instead were primarily a "cost-plus" economy (you paid the cost plus a known margin).
I know it is extremely hard when most of us have been embedded in a neoliberal, market-centric culture for our entire lives to think this far outside the box, but there really is no law of nature that says that what I pay you to do work for me must depend on how many other people could do the work.
There's no inherent reason why an abundance of labor would cause wages to not track productivity (either within a sector, or across an entire economy).
In a culture that viewed the economy as a tool to enhance the living standards and quality for all of its members, there might be a very weak or even non-existent connection between labor availability and wages. Productivity gains could be viewed as way to either (a) reduce the amount of labor required (b) increase the amount of goods & services available, or both. Wages could remain fixed, or increase in such a scenario.
This is nothing like the economic system in which we live, however; an economic system that is viewed as a playground in which which some will accumulate vast resources (and thus power) and others will not can never function the way I just described.
> This is nothing like the economic system in which we live
That some theoretical other economy might exist does not belie the one this article discusses correlates wages and scarcity of labor, nor does it preclude anyone from making different decisions about pricing their own labor.
The article discusses a hypothetical timeline in which wage growth tracks productivity. So it's already in the land of hypotheticals. The question is: how far into that land is it worth going to try to illuminate the full range of the possible?
There's a lot of reasons for this but one of the largest is the near invisible (to me) structural shift from direct hire to contractors for jobs at the lower end of the wage/salary spectrum.
There is a fantastic long form article that articulates this better than I can at:
"Thirty years ago, she says, you could walk into any hotel in America and everyone in the building, from the cleaners to the security guards to the bartenders, was a direct hire, each worker on the same pay scale and enjoying the same benefits as everyone else. Today, they’re almost all indirect hires, employees of random, anonymous contracting companies: Laundry Inc., Rent-A-Guard Inc., Watery Margarita Inc. In 2015, the Government Accountability Office estimated that 40 percent of American workers were employed under some sort of “contingent” arrangement like this—from barbers to midwives to nuclear waste inspectors to symphony cellists. Since the downturn, the industry that has added the most jobs is not tech or retail or nursing. It is “temporary help services”—all the small, no-brand contractors who recruit workers and rent them out to bigger companies.
The effect of all this “domestic outsourcing”—and, let’s be honest, its actual purpose—is that workers get a lot less out of their jobs than they used to. One of Batt’s papers found that employees lose up to 40 percent of their salary when they’re “re-classified” as contractors. In 2013, the city of Memphis reportedly cut wages from $15 an hour to $10 after it fired its school bus drivers and forced them to reapply through a staffing agency. Some Walmart “lumpers,” the warehouse workers who carry boxes from trucks to shelves, have to show up every morning but only get paid if there’s enough work for them that day."
The biggest reason is that there has been almost no productivity gain for cleaning a hotel in the last 20-30 years. It takes same amount of time and effort. So why would the wages go up if productivity is not up?
The productivity gains went to either things that got automated (e.g. speciality equipment operator - wages are higher but there are less jobs) or knowledge workers (software engineering salaries have skyrocketed).
>So why would the wages go up if productivity is not up?
The wages in lots of sectors without productivity gains have gone up because they must compete against sectors where productivity has gone up. This is known as Baumol's Cost Disease.[0]
For something like hotel cleaning you also have to take into account the large grey market for labor. There are estimated to be around 10.5-12 million undocumented migrants in the US.
It's not a coincidence that there is a rotating crew of Russian speaking janitors who clean my office building and Spanish speaking landscapers outside my apartment. I'm not discounting that many of them are legal immigrants, just lower skilled and working their way on up. More power to them.
I can also see though how this situation is easily taken advantage of. Contracting firm hires undocumented workers for below market rates and is able to under bid for contracts. Big company fires their in house workers to save money and hires the contracting firm. Big company then gets the advantage of undocumented labor wages without the liability.
> The biggest reason is that there has been almost no productivity gain for cleaning a hotel in the last 20-30 years. It takes same amount of time and effort. So why would the wages go up if productivity is not up?
Wages are a function of supply and demand. If the people cleaning hotels had better options, their wages would go up (or hotels would shut down, or ask people to clean their own room before they leave, etc.)
That seems more-or-less intuitively plausible, but I often find missing from these discussions, is the aggregate employers' contribution to health insurance plans. If, for example, my employer's contribution to my health insurance premiums go up $500/month - I am going home with $6000 less that year. Now, they probably don't cut my wages, but it's pretty easy to see how they might be frozen for a few years.
I haven't looked into whether it's specifically an issue but in France it's notoriously hard to fire employees and indeed a lot of work is done by workers hired from agencies. This is also because it is very hard to make temporary contracts here.
Czech Republic here. We are somewhere between France and the US when it comes to hardness of firing people.
Agency work is extremely common here, especially on the lower level of the job ladder. Gig economy and contractors are common even in higher settings, such as software development.
I think it has to do with wages. And also with the ability to abuse those employees without exposing the "brand" to public scrutiny and litigation. It also allows you to offer better benefits to your core employees without offering the same to employees that work for contractors (there are fringe benefits like childcare or use of company facilities like private gyms that generally must be offered to all employees in order to expense them).
Oh, you all weren't paid for your overtime? Sorry, you don't work for Hilton. You work for Rent-a-Janitor. And they just filed for bankruptcy and closed shop. Hilton had previously dropped their contract with them due to their unscrupulous practices. We have now contracted with a totally different company, Rent-a-Janitor 2.
(This is a made up example. I have no idea if Hilton does anything like this, but most all huge companies do it.)
It doesn't, you're literally paying a middleman to take away the risk and hassle of hiring an employee. That's the added value here.
Otherwise, you could just hire the worker directly for what that middleman is paying them. Working as a contractor, you get a pretty good idea of what your "rights" are worth in pure dollar terms.
Aren't the usual reasons we buy a service rather than doing something ourselves chosen from a list that goes something like:
* X is available more cheaply from a third party supplier (who presumably has achieved some kinds of economies of scale) than our fully-loaded cost to deliver the same
* X is a commodity product where we do not feel we can differentiate ourselves by doing it in-house
* X is ancillary, but important, to our core business and we lack the expertise to do it well, so we will buy in rather than build that expertise
Not many hotels are bothering to drill their own wells these days, bearing in mind that water is available from utility suppliers - why would room cleaning service be immune from the same forces?
If Big Publicly Listed Company A contracts with Small Fly-by-Night LLC B to provide workers to vacuum and empty wastebaskets, and it turns out that LLC B is illegally withholding wages, then Company A could be partially liable because they should have done due diligence and picked reputable law-abiding suppliers.
I can think of a couple different legal metaphors for this:
1. Something similar to banking's Know-Your-Customer could work... maybe call it Know-Your-Suppliers.
2. People are criminally liable for possessing child pornography even if they had no participation in the direct crimes of its creation. In other words: in this case there is no immunity just because the crimes happened somewhere "upstream".
For instance, how likely are your Fly-by-night employee or sub-sub-contractor to rat out the Fly-by-night? They may get a beating, their checks withheld, the Fly-by-night go under.
If it still happens, Big Publicly Listed company pays for it to go away in a settlement.
If it goes to court, they Big Company can say "we work very diligently to avoid this situation in the future and what happened is in no way indicative of our values".
It is as simple as “X is available more cheaply from a third party supplier.” But in the case of services that depend on low-skill labour like room cleaning, there are no presumed economies of scale. These companies don’t get the same work done with less labour, like utility suppliers. Instead, they pay workers less, and use complex business structures and confidentiality agreements to protect the client from the consequences (unions, lawsuits and PR damage). This isn’t capitalism realising positive-sum efficiencies; it’s just taking resources from workers and giving them to business owners.
It's not difficult to fire employees in the US. You can't just fire the minorities and the women, but other than that you can fire for any reason at any time.
It's sometimes difficult to fire employees as a way of lowering wages. The people left behind who are expected to make up for that through raised workloads and losing the experienced for green new hires might complain.
These companies are b2b and provide value to other businesses who would rather not become experts in say, how to manage cleaning staff, and rather focus on building widgets.
In that regard the sales pitch is similar to how Microsoft can sell a company email and word processing so that the company doesn't have to figure out how to write business software.
The degree to which both costs and risk are shifted onto workers is at times astonishing:
“After paying about $1,500 for home office equipment: a computer, two headsets and a phone line dedicated to Arise; after paying Arise to run a check on her background; after passing Arise’s voice-assessment test and signing Arise’s nondisclosure form; after paying for and passing Arise’s introductory training, to which she devoted three days, unpaid; after paying for and passing a certification course to provide customer service for Arise client AT&T, to which she devoted 44 unpaid days; after then being informed she had to get more training yet — an additional 10 days, for which she was told she would be paid, but wasn’t; and then, after finally getting a chance to sign up for hours and do work for which she would be paid (except for her time spent waiting for technical support, or researching customer issues, or huddling with supervisors), Tami Pendergraft spent three weeks fielding telephone calls from AT&T customers, after which she received a single paycheck.
The really awful thing from that story (Planet Money did a great recent episode on the ProPublica coverage) is that they are able to get away with this through Arbitration clauses. By way of their contracts, they strongarm their contractors into dealing with any "misclassification" issues (eg. exerting too much control over a contractor) individually, silently, and outside of court. Contractors have no ability to sue in a class action suit, and aren't even allowed to speak to fellow contractors if they go through arbitration. It's such a sneaky and frankly complicit way to enforce their business model. They know it's grey, and they put people in the corner so they can't call it grey with a loud enough voice for serious attention to be brought to the issue.
Thankfully some law firms have taken the approach to overwhelm Arise with individual arbitration claims. Arise likely calculated in to their model as a cost of business expense, so the best that can be done is to make that expense grow.
> is that they are able to get away with this through Arbitration clauses.
The root cause is the demand for that type of labor is dwarfed by supply for type of labor, and the long lasting solution would be to provide those people with better options.
Arbitration is actually very expensive for the company but generally they can rely on the fact that most people will not utilize it for a variety of reasons. If people large scale started taking companies like this to claims it could quickly become more expensive than class action lawsuits trying to arbitrate each individual claim.
If you feel strongly against arbitration clauses, activism to get people to use them is the fastest way to kill them as the cost benefit will quickly become a negative.
How would you "amend the Federal Arbitration Act to deny the use of arbitration as a tool to suppress legitimate use of the courts to address remedies"? Do you just want to get rid of mandatory arbitration? That sounds like repealing the FAA and replacing it with its mirror image.
Well, I (and many others) think that making the courts the sole venue for resolving these disputes is not necessarily better. Getting rid of mandatory arbitration means that only large cases (with lawyers on contingency) and class-actions (where the lawyers are the only ones who benefit) will go forward. Mandatory arbitration is the best venue for medium-sized individual (settlement/judgement) cases, and courts are not viable for them.
I see mandatory arbitration as a trade-off, and would simply prefer that people take that kind of clause into account when they transact with others.
Well, I think AT&T and Arise actually are people, they're just not individuals.
But getting to the core of your point, how would you allocate blame? Is the CEO responsible for every mistake? Do you part it out to various levels of management, based on their involvement with this specific case? Do you think it's better if more corporations copy Google's approach, and outsource all the low-wage work to avoid bring blamed for problems?
To be clear, I am not sure who is to blame for what, but I think the real problem is a shortage of opportunities for people at the bottom of the corporate ladder (as well as for those struggling to get on it). The average HNer isn't protected from exploitation by laws, they are protected by their BATNA (best alternative to a negotiated agreement).
> Do you part it out to various levels of management, based on their involvement with this specific case?
In general with larger corporations this feels like it makes the most sense. With resources like LinkedIn it should be a lot easier to determine the person or person(s) in charge of these decisions along with the CEO.
All these comparisons miss one thing: after WWII America had a monopoly. We had destroyed our competitors factories in Asia as well as in Europe. It took a while for them to build back and be truly competitive outside their home countries.
Here in Michigan we had a front row seat to this happening with manufacturing. Everything peaked in 1973 and has been on a slow decline ever since. Sure there have been booms but the long term trend has been down.
The Japanese started importing cheap motorcycles to the West coast, then cheap cars. We didn't see them in Michigan and if auto execs did they would have laughed. The Big 3 saw VW and their Beetle as the big import threat. Suddenly those Japanese cars became better in quality. Then the Koreans went through the same cycle and Japan introduced luxury cars as well.
Because wages were much less in Asia even after accounting for shipping this exerted downward pressure on wages. Give America back the monopoly it had in the fifties and sixties and minimum wage would be $24 an hour.
Hi from Scandinavia, we dont have a monopoly on anything, and no actual minimum wage, yet people make about $20+ at the lowest paying jobs, enjoy 5 weeks paid vacation, free healthcare and cheap childcare..
The point is that I can't determine where his country's wealth comes from if he doesn't state his country. Also I'm skeptical f this person actually even being from the region. For example, if he is from Norway most of his wealth is derived from oil.
Thanks to fracking, the US is actually a marginal net exporter of oil, depending on the average price of oil (traditional wells can squeeze out frackers with their lower production cost)
As you said, oil helps, but it’s not determinative. Norway is interesting in that they’ve used their oil money very wisely, but it seems pretty clear that other policies are necessary in order to ensure that economic prosperity is well distributed.
I kinda agree with GP: when someone isn't specific about where they're from, then nobody can really respond to them. It's like when people say they're from Europe or how great things are from them there. Even if you wanted to look up how your argument applies to their country or how their country addresses your point, you cannot.
Yes they do, which is why the US made that in impossible in the 30s. Making it so that unions can only form on the basis of company level votes, along with myriad other restrictions, made it so that the labor movement could never have as much power as it does in Europe.
yes unions are mostly big and exists across companies. However you are also free to join any union you like or none at all. For jobs a restaurants, factories etc. salary is mostly the product of Employer - Union negotiation. As a software dev, you negotiate yourself (unless you work a gov job).
In parts of Europe, individual workers choose their unions. You don’t necessarily join a union simply because it’s the one that is exclusive to the company. Instead of fighting myriad individual battles to unionize workplaces, workers join independent unions, the unions collaborate to bargain in a sector, and set things like wage floors and working conditions across the industry.
The US specifically did not want this to happen, which is why it made unionization only valid on the basis of the adversarial, shop-vote model, but grandfathering in some unions that already functioned along similar, sectoral lines, such as the Hollywood unions.
The wild thing is that even if you were to apply Scandinavia's highest tax bracket of 57% to this (which someone in the lowest tax bracket would never pay), you'd still come out above the US national minimum wage, out of which one is also expected to pay for healthcare and budget for unpaid time off.
By my very limited calculations, you would be paying effictively about 33% tax, because of baseline deductions, and beeing in the lowest tax bracket. remember you still have free healthcare, education, paid vacation, paid maternity leave etc.
Wealth availability and spreading is a multidimensional problem. More wealth can be made available to the average person (median) in a variety of manners. Having more wealth producing centers like intact factories not destroyed by world war 2 bombing is one way to give a locality more average wealth and higher minimum wages. This increases the mean and total wealth.
Another manner of increasing the median wealth is through managing income distribution and inequality. Socialist policies, labor unions, etc etc, will raise the median amount of wealth even if the mean stays the same.
Wouldn't it be great if you let in a million people from countries where people make lot less than $20. It would be fastest way to raise standard for those people
Yeah, and pressure their system and degrade their standards, they've build over years themselves (in 1900 Sweden was not much different than a third world country today).
Why do those other people get some automatic raise?
> Give America back the monopoly it had in the fifties and sixties and minimum wage would be $24 an hour.
It would take a lot more than that. Remember that the gains labor made after world war II were built upon decades of struggle by labor, including frequently being targets of violence by armed militia hired by corporations [1]. Despite that, America desperately needed labor for world war II (where the alternative was defeat at the hands of the Nazis), so for that moment in history capital and labor found themselves in a obvious win-win scenario. Most of the gains made by labor in America were made during this period.
The minimum wage does not naturally rise - it is a policy decision, one implemented under pressure from labor. And as labor's political power has waned and capital's political power has increased, minimum wage has stagnated.
Under our current system that heavily favors returning productivity gains to capital instead of labor, returning America to that global monopoly (which would require the highly improbable destruction the industrial capacity of the rest of the world while leaving America's untouched) would just turn the hypothetical gains of that monopoly over to the owners of capital.
Realistically, any attempt to return to the prior American monopoly would result in a massive regression in the American standard of living, through the destruction of purchasing power abroad for American goods and services (remember, we have a lot more people today than we did back then, and many of them - especially farmers - work in occupations that sell to other countries).
The minimum amount of money you have to pay for someone to show up for any job rises (and falls) alongside demand for labor in the broader economy.
> Under our current system that heavily favors returning productivity gains to capital instead of labor...
If you look at the profit margins of those companies that employ a lot of low-end labor, you will find that they're generally in the single digit percentages. I think that's a pretty fair deal for organizing all that labor and taking on the capital risk. Profits aren't guaranteed, after all. There just isn't that much money to redistribute here, you would have to raise prices, which can make you uncompetitive.
> The minimum amount of money you have to pay for someone to show up for any job rises (and falls) alongside demand for labor in the broader economy.
Oh, what that it were so simple. There are far more factors governing "market wages", which you are describing, including labor supply at a given skill level, automation, political representation of laborers vs employers, and how that representation manifests as power in the local and global economic contexts.
The "minimum wage" specifically is a policy designed to put a floor under the standard of living of people whose market wages in the economy would provide a standard of living below what the society considers humane. Some societies have no such humanity based floor.
> The "minimum wage" specifically is a policy designed to put a floor under the standard of living of people whose market wages in the economy would provide a standard of living below what the society considers humane. Some societies have no such humanity based floor.
Maybe that's the intention, but what a minimum wage actually does is remove the possibility for anyone to work below an arbitrary number of dollars.
If that value is lower than the going market rate for low-skilled labor, minimum wage makes no difference.
Above that, it removes more and more people from the "eligible to work" pool. There's nothing humane about preventing people from being able to work, especially when you don't have a welfare system to pick up those who are now doomed to unemployment.
I think to work right the jobs guarantee needs to be a temporary guarantee with the aim of upskilling and not purely a "make work" program. Something more like college, though not academic, with built-in accountability mechanisms.
It shouldn't be normalized to be a "lifelong" thing, in the same way we think it's unusual for someone to be a lifelong college student. At least one without milestones such as degrees, etc.
I agree. The goal shouldn't be ditch digging. There is a huge amount of work that needs to be done in areas that will require plenty of upskilling that can take place while working.
> There's nothing humane about preventing people from being able to work
My reading of the argument (maybe different from OP) is the choice to work a low wage job isn't a choice made completely by one's own volition due to a huge stack of societal factors.
Let's break your counterargument down a bit, preventing people from being able to work denies them sustenance yes, but also embedded (IMO) in your argument is the intrinsic value of a job as a part of someone's life. Here we agree and this is why I don't support cradle-to-grave welfare and think it would be a disaster if implemented. It is something welfare advocates tend to ignore, to the detriment of their credibility on other economic matters.
A retraining program coupled with a large hike in minimum wages and temporary retraining assistance could sustainably raise the minimum standard of living with no government takeover of the economy. The program itself can be a private one if designed the right way. Prior retraining programs didn't work due to 1) lack of accountability and 2) lack of demand for upskilled labor. A very high minimum wage fixes that on the cost side and also on the aggregate demand side. (Something approaching the median US wage today or possibly 1.5x-2x higher, phased in over several decades to give business a measure of predictability and planning capacity.)
Most low paying jobs can be automated, when they aren't it is because human labor is so cheap that the expense of capex to automate isn't worth it. By raising the floor cost of labor, government provides business an incentive to retool the economy around higher-wage paying activities. Any business that can't automate and relies on cheap human work to do drudgery isn't worth saving in my opinion. A bonus is that the resulting capex will generate second and third order effects that will catalyze economic growth and spare many otherwise impacted small businesses from failing.
We want to idealize the person who starts out in a fast food restaurant, learns discipline and organizational skills, and moves on to higher paying work. Several decades of data have shown us this is a nice theory that fails in practice in most cases. Those people remain stuck and that is bad for economic growth in addition to causing needless suffering. Keeping the minimum wage low hasn't solved this problem and won't solve it in the future.
You disregard the option of simply not doing business. If products and services become more expensive, demand tends to go down, so you end up at square one in terms of income. There is some wiggle room here and not all prices are elastic like that, but it's true in principle.
This story would be more convincing if revenues and profit margin for US firms were correlated with wages. But insofar as they’re not, then all you’re saying is “firms chose to spend less on labor because there was more of it thanks to globalization”.
Why were American firms not able to use their advantage to compete against the upstarts? This comment reads to me as implying American companies are uncompetitive compared foreign firms and are doomed to lose simply by being subject to competitive forces.
What are these other companies doing that we are not? What can we do to make ourselves more competitive such that each employee has enough productive capacity to easily receive $24/hr or equivalent? The peak of 1973 is gone and not coming back, we have to look to the future now.
From the macroeconomic perspective, since the US dollar had reserve status and unlimited foreign demand, it just becomes more efficient to print and export dollar bills and import real goods than to actually exert physical labor to produce goods to export and balance trade. Once this realization sets in, the optimal game theory outcome is to reorganize the economy around this structure of print-and-export-dollars debt-based system. Debt only becomes a problem when other people don’t want to hold it anymore.
That's true. The US dollar reserve status is a contingent factor however.
How do we maintain it? An obvious factor is our military capacity. That means defense spending. Under a capitalist system that also requires a competitive commercial defense sector and also a strong economy capable of sustaining such a sector via tax revenue.
Most tax revenue comes from individuals. In an era of mobile capital, corporate taxation is sub-optimal. So the economy's health is linked to the prosperity of individuals, in aggregate. Prosperity can come from competition, but the most durable forms of prosperity are tied to increasing productivity.
Continuing on this first principles trajectory should lead to a stable structure. It's not one that is dominated by "print-and-export-dollars"-style industries.
The fruits of globalism aren't shared equitably amongst labor, post-1970's labor earnings have done exceptionally well for the upper tranches of the labor pyramid. Why are those more competitive than the rest? There are factors like differential productivity gains due to globalization, technology, etc but I'm not convinced. Especially when one takes Baumol's cost disease into account. There was a change in during the 1970s, but I don't believe globalism was it.
The surprising thing about the current era is just how little wealth is inherited and how much has been largely generated during the owner's lifetime, in many cases due to labor and receiving compensation in the form of stock. The vast inheritances we read about from the 19th century aren't there this time, barring a few exceptions. Thomas Piketty wrote about this in Capital.
Labor in the top 1% is still labor was my point. I never argued that inequality doesn't exist or didn't get worse. I just think the capital vs labor rhetoric is a distraction.
Edit: Also, from the link, this is very fishy to me. You could argue the medical benefits they exclude aren't meaningful because of healthcare inflation not being linked to better health outcomes. You can't make that argument for capital gains. It's likely not be meaningful because there are indeed severe inequalities among Americans in capital assets holdings, it is still an omission however.
> And it takes into account capital gains but, due to certain technical constraints, only for those above the 90th percentile.
I have an issue with this. By some definition, of course. But there is still something very different about the kind of labor which goes on there. Class, opportunity, connections, access to capital, and access to political influence further entrenching their position. It's almost like the nobility of yore.
I find pointing to the 1% labor as some kind of redeeming quality of the system, is instead a distraction from capital vs labor. For the regular labor to have a chance to enter the top 1% of labor, is just as much of a pipe dream as them falling into Big Capital.
I think that’s kind of what the OP you responded to was getting at. I know professors at large state universities making $100,000+ in medium to low cost of living locations. Some make even more. They aren’t 1% but they might be top 10%.
I guess what’s piqued my interest here is, at what point do we consider labor to be labor?
If you get a nice UAW job for 30 years and plow money into the market, are you not a capitalist?
Is a surgeon not labor since he or she may not own the hospital? Sure they may make $700,000/year, but... aren’t they working for a living?
The Meritocracy Trap is a great book I’d recommend that’s related to this question/issue. Wealth and the bourgeoisie used to just hang out all day and go for walks in the park. Now they work 120 hours/week.
'Elite men in the U.S. are the world’s chief workaholics. They work longer hours than poorer men in the U.S. and rich men in other advanced countries. In the last generation, they have reduced their leisure time by more than any other demographic. As the economist Robert Frank wrote, “building wealth to them is a creative process, and the closest thing they have to fun.”'
Re-reading this piece [1] (also see my reply to the sibling comment) should clarify what this trope hides, which is that there's a deep, structural differential in productivity in the current economy it cannot explain. Why do the rich choose to work so much? That flies in the face of all logic since they can just kick back and exploit their class, opportunity, etc. Yet they don't because the work is fun. Counter to that, why do the poor choose to work less even if there are clear avenues of advancement? In the article you'll find some interesting speculation.
We need to fix our relationship with work, especially for the sake of those currently unable to do "fun" jobs that pay well. I don't think working less or a redistribution scheme via the government is an honest solution.
Instead, a much higher minimum wage coupled with retraining and temporary economic assistance that can spur a mass automation of "drudgery"-type jobs is a better answer. This in turn would allow society to redesign work so that it is more humane and more valuable. I also don't buy the belief that only some are capable of creative work.
I agree, this is one of those slow moving trends that you just don't see but has really large effects after decades of compounding. It used to be normal for companies to have much larger work forces and to in-source all tasks, even if they were not a core competency.
Now the emphasis is on lean everything, to only focus on your niche, and outsource as much as possible. Remember IT departments? It's all been outsourced to the Cloud.
I have two theories on this.
One is that we simply have improved our management processes. The economy became more developed and you could realize real efficiency gains from outsourcing. From a pure GDP perspective - this was good.
The second is more messy and i'm still working on it but it ties into a lot of macro issues. It used to be much easier start out with no experience, say as a janitor, and work your way up to a higher position in the same company. This was possible because it was all the same company. Now with outsourcing this is impossible, if you start as a janitor, the only thing you can do is maybe run the janitor company, but you won't ever become the CEO of the company whose office you clean.
At the same time, you've made entry-level positions at the company harder to attain. The floor is no longer janitor, it is now junior developer (to take a software example). This is one of the reasons why I think there is such a bifurcation in our labor market. A college degree is now the minimum requirement to get your foot into the door. Again, it used to possible to start at the very bottom and work your way up but now there is a hard cap on growth unless you go the college route.
I think this was a clever way for companies to also push costs onto employees. Training used to be a thing companies did but now it's basically been abandoned. Go spend your own money and get a degree before even talking to us is the attitude.
Capitalism is an exercise in specialization. The more advanced an economy, the more it relies on specialized skills which requires increased focus to be competitive.
An interesting outcome is that is becomes more difficult to rise to high levels unless that is what you’re optimizing for early. Ironically, this creates the same pressure that makes high levels so competitive and potentially miserable
Not only that, but you can draw collaborators from the entire world, and even get investment capital from the globe (like kickstarter, etc.).
I remember when I wanted to sell in France, I had to find a French distributor, make a French version of the product, guess how many would sell there, ship a pile to the distributor, the distributor collects most of the money, and unsold merchandise is scrapped. If I didn't have a distributor, the merchandise was always getting hung up in customs, would disappear in the mail, would take 6 weeks to deliver, I'd get paid in dollary-doos that no bank would exchange, etc.
Rinse, repeat for every country.
Today, I ship all over the world via the internet for $0, have no stock, no scrap, no middlemen, get paid instantly, ship instantly, and the transaction cost is 1% for paypal and 3% for credit cards.
> Today, I ship all over the world via the internet for $0, have no stock, no scrap, no middlemen, get paid instantly, ship instantly, and the transaction cost is 1% for paypal and 3% for credit cards.
This all true, and empowering for those who have the relevant know-how and opportunities. However, these apparent efficiencies are built on the back of the factors that GP points out. Empowerment for some relies on structures that disempower others. Agency staff live precariously; the companies that use them have ever tighter margins, they are increasingly hollow shells that serve only to generate cash not to provide the security of employment.
The convenience we appear to benefit from is an ever-thinner veneer that disguises deeper problems.
In America it's largely the choices people make. After all, school doesn't teach how to create a startup. But there are plenty of books and blogs on how to do it. All one needs is the get-up-and-go to take advantage of all the freely available information.
It's not a lack of "get-up-and-go" that perpetuates lack of opportunity. "All one needs"? You could gain some insights here by having a few conversations with people doing the sort of precarious contractor work that was mentioned previously. I doubt they're lacking elbow grease.
There's also an implication that it's simply okay to let job security rot away, that people in precarious work should simply read a few blogs and retrain. I'm not convinced that it's a good plan to ignore creepingly pervasive employment insecurity.
> Yet the biggest difference between their two experiences is in the opportunities they created. A manager learned that Evans was taking computer classes while she was working as a janitor and asked her to teach some other employees how to use spreadsheet software to track inventory. When she eventually finished her college degree in 1987, she was promoted to a professional-track job in information technology.
> Less than a decade later, Evans was chief technology officer of the whole company, and she has had a long career since as a senior executive at other top companies. Ramos sees the only advancement possibility as becoming a team leader keeping tabs on a few other janitors, which pays an extra 50 cents an hour.
There's an other issue here: Evans bootstrapped herself by getting a (relevant) degree.
The spreadsheet story is nice, but even having these skills back in the 80's was way less common than today. The article should also have looked at how much tuition was relative to the cost of living/salary Evans was making, and if Ramos could afford it today.
> Evans was a full-time employee of Kodak. She received more than four weeks of paid vacation per year, reimbursement of some tuition costs to go to college part time, and a bonus payment every March. When the facility she cleaned was shut down, the company found another job for her: cutting film.
She was able to bootstrap her career at least in part because Kodak offered tuition reimbursement and other benefits.
What I would be curious to read is an accountant taking a look at Ramos finances and figuring out how she could afford (or not) to get the same degree.
You might have your finger on something, but that explanation as written doesn't make much sense. If workers don't have the market power to prevent being reclassified as contractors, they certainly don't have enough market power to lobby for real wage increases.
The structural shift to contractors is part of a broad trend after 1970 suggesting American labour isn't, economically speaking, a growth engine.
And there’s no career advancement for contractors. Thirty years ago the best and brightest at the hotel might get a chance to get promoted to manager, which would give them a better wage and even more skills. As a contractor this is practically impossible, both because your actual company never observes you and has very few management positions to get promoted to, and because the hotel probably can’t hire you without breaching their contract with the staffing agency.
It was recently pointed out to me that health insurance costs roughly the same to purchase for each employee, so with wildly different wages, the percentage that health insurance makes up of the total cost associated with an employee also differs wildly. So while health insurance might make up e.g. 5% of what is paid for a software engineer, it could make up 80% of what is paid for a janitor. This puts a big incentive on companies to get rid of their lowest paid employees (or wiggle their way out of providing benefits), since there is essentially a fixed price income tax that always needs to be paid on any salary regardless of it's size otherwise.
> let’s be honest, its actual purpose—is that workers get a lot less out of their jobs than they used to.
Do you really belive there is a collective of business owners who thought "yeah, let's outsource everything, because f..k employees"?
Obviously it's about specialization. Why a software house should hire a cleaning lady? They are not in the business of cleaning, they know nothing about it and they don't want to even think about how you go about hiring someone for cleaning.
Or the other way around. Should a cleaning company hire software developers? They would fail so hard at it. Not to mention the frustration.
It is also about the time consuming reality of being an employer. You have to advertise jobs, find applicants and hire someone, cover holidays and sickness, deal with poor performance. All of that takes time.
I honestly think that having people in house to do these kind of jobs can be a benefit. A good receptionist for example can be a real asset. But they are hard to find.
The data isn't sourced. Most claims of this nature ultimately source back to EPI's faked data that uses two different measures of inflation to falsely portray the productivity gap as far higher than it actually is.
This is so horribly flawed. Productivity improvements have been concentrated at the high end, and those that have occurred in low skilled jobs have been almost entirely due to technology, not to labor efficiency. Technology gains have always disproportionately been captured by the providers of capital over the providers of labor (given they are the ones who invest in said technology).
Yes, bummed I had to scroll to end of comments for someone who gets it. Society can change the contract we all abide by. But as it stands right now, this is working as intended. And living standards of the bottom 10% versus 100 years ago are unimaginably better off, which is what we sought a century ago: absolute improvements.
Now everybody is rich enough that we can afford to debate the relativism of the capitalist social contract...but that’s only thanks to the advancements brought about in the first place.
That view is even more flawed, since everyone who pays taxes is an investor of technology. Most breakthroughs in tech happen at universities. It’s not private equity that funds tech, but taxes. So the beneficiaries of tech breakthroughs should be... everyone.
What value does technology provide other than increasing labor efficiency? If tech helps me build 10x the number of widgets, should all of that surplus value only be captured by the technology owners?
What about the people who build and service the technology which allows these improvements to be implemented?
If you replace 1,000 workers with 50 and a very expensive machine, should you pay each worker who remains 20 times as much? Because that’s the assumption in the article.
The people who build and service the technology are paid well. They’re techies who live in Silicon Valley, etc. But there are just very few of them compared to the 950 newly obsolete workers.
If efficiency has gone up why hasnt rent gone down?
Since rent has been pushed up by political means why not wages?
Also, why are we assuming that technology brought down wages when offshoring has skyrocketed. What makes you think it wasn't competition from the third world labor rather than robots? There is a political position embedded in the assumption that robots are responsible for the missing jobs.
I'm all in favor of a 100% land value tax but I'll happily take a higher minimum wage to compensate for a lack of it while the political system gets its act together.
I would guess this speaks more to political mismanagement than an intentional goal. No politician is going to get elected on a platform of higher rents and lower wages. Increased rents, at least, are usually caused more by good intentions gone bad than by intentional malice
>No politician is going to get elected on a platform of higher rents and lower wages
Have you noticed how little the media focuses on the actual platforms of most politicians and focuses on the spectacle and drama of politics instead? That distraction serve a purpose (for the owners of said media).
Also, a platform of higher rents and lower wages will usually be called "lower taxes" and "freedom from onerous regulations". If you want to see more of this type of propaganda, look at https://www.aei.org/ for instance.
This type of thing falls apart when analyzed too closely, which is partly why the media will use it to drive soundbites but won't dive in too deep.
Politicians get elected on a platform of higher rents and lower wages because the donations they rely upon come from people who want it and the media coverage they rely upon come from people who want it.
As bad as Prop 13 is for California, it's silly to put the whole blame on high rents on it. It's enough to note that rents are high in NYC, Boston, DC, and Seattle, and none of these places have Prop 13. If you can have skyrocketing rents without Prop 13, why would you think that it's Proposition 13 that's bearing the whole blame in California?
San Fran also has rent control, good weather, and high income jobs.
But while Prop 13 also affects politics around new construction, it's a far reach to use its long term effects on voter behavior to associate general concepts of lower taxes and less regulation with higher rents or lower wages.
Lowering taxes on renters can raise rents, if new housing is banned, because renters then have more money to compete for limited housing with. Likewise, the recent corporate income tax cuts raised wages at the bottom.
If you can find an NYT article in the last two years using AEI as the source of a story I’ll buy you a nice bottle of whiskey. The media will systematically ignore sources like AEI, that use actual numbers, in favor of soundbites like the one in this Common Dreams article.
i would be mildly surprised if "liberal" CNBC had even one person from common dreams on.
i'm not gonna dig through the new york times for examples where they cited somebody from AEI coz it's paywalled but it wouldn't surprise me if they, like CNBC do, routinely.
CNBC isn’t NBC, and it’s not a general-interest media outlet. It’s a specialized outlet for financial and business people: https://en.wikipedia.org/wiki/CNBC
> Also, why are we assuming that technology brought down wages when offshoring has skyrocketed. What makes you think it wasn't competition from the third world labor rather than robots?
Do we think that increasing minimum wage will hasten or slow down this trend?
If the United States government wanted to speed up or slow down this trend or even halt it altogether it could do so tomorrow no matter what the minimum wage did. Currently it views offshoring as a geopolitical threat and is opting to slowly repatriate supply chains. No matter what happens to the minimum wage that opinion is unlikely to change.
I don't think it makes sense to treat an explicit political choice as a fait accompli.
This makes me think of this passage by Bertrand Russell wrt. increases in efficiency and working hours:
"The War showed conclusively that by the scientific organization of production it is possible to keep modern populations in fair comfort on a small part of the working capacity of the modern world. If at the end of the War the scientific organization which had been created in order to liberate men for fighting and munition work had been preserved, and the hours of work had been cut down to four, all would have been well. Instead of that, the old chaos was restored, those whose work was demanded were made to work long hours, and the rest were left to starve as unemployed. Why? Because work is a duty, and a man should not receive wages in proportion to what he has produced, but in proportion to his virtue as exemplified by his industry.
This is the morality of the Slave State, applied in circumstances totally unlike those in which it arose. No wonder the result has been disastrous. Let us take an illustration. Suppose that at a given moment a certain number of people are engaged in the manufacture of pins. They make as many pins as the world needs, working (say) eight hours a day. Someone makes an invention by which the same number of men can make twice as many pins as before. But the world does not need twice as many pins: pins are already so cheap that hardly any more will be bought at a lower price. In a sensible world everybody concerned in the manufacture of pins would take to working four hours instead of eight, and everything else would go on as before. But in the actual world this would be thought demoralizing. The men still work eight hours, there are too many pins, some employers go bankrupt, and half the men previously concerned in making pins are thrown out of work. There is, in the end, just as much leisure as on the other plan, but half the men are totally idle while half are still overworked. In this way it is insured that the unavoidable leisure shall cause misery all round instead of being a universal source of happiness. Can anything more insane be imagined?"
Those displaced (50% in the example above) can go and provide services in another area... Why should only the pin producers get 4 hour weeks. What about those have to toil in the field for 8 hours a day to produce food?
What happens is that those 4 can go do something else; now in reality that something else is often not as good as what they were doing before or else they would have already been doing it.
But people are not static and can improve, develop skills, and learn new things. Also prices normally go down, which encourages innovation, and can create whole new classes of jobs.
For instance before medical imaging we didn't have x-ray technicians, etc - But I'm glad that new field was created.
> Those displaced (50% in the example above) can go and provide services in another area... Why should only the pin producers get 4 hour weeks. What about those have to toil in the field for 8 hours a day to produce food?
So for the sake of fairness, no one should get to work less hours?
It's pretty clear that Russell's sentiment is that this should be expanded to society as a whole.
Sure people can work less hours, but right now people choose to want more things - better healthcare, larger houses, more entertainment and choose to work more hours.
Certain areas are clearly broken - education, medicine, and housing -- but that's largely due to government interference.
> Sure people can work less hours, but right now people choose to want more things - better healthcare, larger houses, more entertainment and choose to work more hours.
That has not been proven. If anything the opposite. I'm sure that a significant portion of the population would choose less time at work over non-essential consumption given the choice. There's a reason that full-time working hours are always changed universally - having the leverage and the economic base to individually request part-time is a privilege. Furthermore there's usually a disproportional economic punishment when one's working hours doesn't reach some "full-time" threshold, not to mention the likely social punishment like having a harder time to get promoted and similar.
People like to assume that people choose non-essential goods over leisure but for some reason they are never very keen on trying to prove it by giving workers the choice without undue punishment.
A good experiment could be to allow people to choose to whether they'd like to get their raise (or if lucky, convert the yearly bonus) in time or money, or perhaps some split.
> but that's largely due to government interference.
From my experience building very expensive industrial machines, the gain is more like 2x-4x not 20x, and that assumes that the game of telephone in the engineering pipeline actually gets it right.
In a recent HN discussion, someone suggested that step one of emulating successful tech companies (Netflix was used as an example) was to fire half your workforce and pay the remaining half double. That logic meshes with my experiences; the machines made you more efficient, but you needed more intelligence to use them than the tools they replaced.
> If tech helps me build 10x the number of widgets, should all of that surplus value only be captured by the technology owners?
idk about the owners specifically, but I think it's fair that the lion's share of the gains go to the people who made it happen. in this example at least, the widget maker didn't do anything to increase their productivity.
Someone else elsewhere made this point: the widget makers are not generally capable of increasing their own productivity because they don't have access to the capital required.
This method of organizing labor and value which disallows workers' to gain anything from increases in their own output keeps them from ever being able to participate in it, leading to alienation from their jobs and living in a perpetual cycle of poverty.
Thats why they invented the joint stock company. Individuals invest their surplus wages in a joint venture in order to gain access to capital that costs too much for any one of them to afford.
They also capture these gains because the increased productivity of the company results in more products of greater value on the market. In short, they benefit as consumers.
The surplus value should definitely not go 100% to the owners and 0% to the laborers. Otherwise, as economic output increases, workers' share of the reward can only continually decrease forever.
But the surplus value should definitely not go 100% to the workers and 0% to the owners. Otherwise, there is no reward for creating the surplus value, and productivity gains will not happen, which in general is no way to run a society. Plus productivity helps reduce scarcity, and scarcity disproportionately affects poorer people.
> should all of that surplus value only be captured by the technology owners?
No, and neither is that the case. The increased profit is the wage the technology earns for the investor who wisely chose to make a successful investment. Other investors made different, less wise automation decisions and in so doing, earned less (or negative) profit.
The remainder of the surplus value is captured by the consumer who now has available to him or her a greater variety of higher quality products at lower prices. They capture this value when they go to market and get more better and newer things.
> What about the people who build and service the technology which allows these improvements to be implemented?
They are typically more skilled workers who get paid more because they are performing a higher skilled job. The old way of doing things was less productive and required less skill from the workers. The new way is more productive and requires greater investments in capital and skilled labor.
In theory competitive markets should force companies to increase automation without long term increases in profits. Grocery stores installing checkout barcode scanners are in competition with other grocery stores which kept the profit margins stable over time. Being ahead or behind the curve impacted individual businesses, but the overall industry saw minimal change.
Thus, technology isn’t the cause of companies capturing a higher percentage of the increased efficiency due to automation.
1971, 1968, doesn't really matter. But - many such "negative" effects only really show up after 1981, that is after the peak of the interest rates. RIP Volcker, the last Fed president with vision.
If you're into slightly crazy sounding theories about the cyclical nature of human progress I recommend: https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generatio.... Ray Dalio is also writing a lot on his own version of the "around 80 years cycle" theory.
I could have bought into this theory... Except that it has these four generations grouped and seems to just cherry-pick good and bad events for each to meet the narrative. I would have expected that every generation have certain crises and certain renaissances active at the same time, and that the pattern of these might loop over time.
Shipping containers were standardized between 1968-1970. A device that enables efficient outsourcing to cheaper labor is a likely reason for labor wages stagnating while overall productivity rises.
Or if you reverse the cause and effect, the demand for global free trade (which is more about neoliberal politics than technology) might has created the need for standardized shipping containers.
Have burger flippers at McDonalds really gotten 2x more productive since 1968? I highly doubt it. I would expect most low-skill labor has not gotten any more productive.
Also, commondreams.org is a known socialist website. Their claims on economic productivity should be taken with an enormous grain of salt.
I feel this discussion always misses an important point. The value of something has nothing to do with its costs or profits. The value of things (labor included) is subjective and is normally related to its scarcity. In the period analyzed the workforce basically doubled because the inclusion of woman to the workforce, therefore it had a huge pressure to keep it low.
If the productivity of less-skilled workers has not kept pace with average productivity, this was by design. It was not the fault of these workers; it was the fault of those who designed policies that had the effect of devaluing their skills.
my point is that the value of the work is not directly related with its productivity but with its availability, which doubled during the last few decades.
These sorts of comparisons are extremely difficult to make. They depend very strongly on what exactly you’re looking at, how you’re measuring inflation, etc. You can easily make charts that show total worker compensation is closely tracking productivity growth: https://www.americanactionforum.org/research/does-compensati...
(Unlike Common Dreams, this article shows their work and discloses their exact methodology and data sources.)
There’s a couple of big picture issues to consider:
1) Why focus on just wages, rather than just benefits? If productivity doubles, but the cost of providing healthcare triples, should employers cover the increased healthcare costs and also double wages? It’s not Microsoft’s fault that it costs $5,000 to get an MRI. From the perspective of how much is transferred from the employer to the employee, a dollar spent on wages isn’t any different than a dollar spent on healthcare.
Failing to distinguish the two things obscured the real problems. It makes you think something is a structural economic problem when in reality it’s cost disease in a particular industry. Wages aren’t keeping up with the cost of housing in New York and San Francisco. But nationwide, the median mortgage payment as a percentage of the median income has scarcely changed since the 1970s. Are wages the problem or are local laws around housing the problem?
2) There is kind of a metaphysical question about who should get the benefits of investment in technology. If you replace 100 workers with technology + very expensive capital equipment, productivity will increase by a factor of 10. (That’s how labor productivity is measured.) Does that mean wages should go up by a factor of 10?
Many (most) minimum wage jobs do not provide any meaningful benefits, so it's tangential to the minimum wage in most cases.
There's no doubt some fuzzy math involved to extrapolate inflation over the course of 50+ years, but I don't think that invalidates the fact that minimum wage has objectively not kept up with inflation even remotely.
The federal minimum wage has been stuck at $7.25 since 2009, and a handful of states are only just now breaching $15/hr. At this rate by the time a federal increase happens we'll already be another 20 years behind.
Worse yet is that labor data shows that more and more adults are working in minimum wage jobs, so the talking point of "it's just summer jobs for teenagers" and "it's entry level work to move on from" is very out of touch with reality these days. There are millions of people trying to survive on these wage levels and without benefits and it is not working.
Insofar as the article is talking about minimum wage workers specifically, it makes even less sense. Has the productivity of minimum wage workers gone up at the same rate as for all workers? The chart is comparing apples and oranges.
> The federal minimum wage has been stuck at $7.25 since 2009, and a handful of states are only just now breaching $15/hr. At this rate by the time a federal increase happens we'll already be another 20 years behind.
But even more localities have higher minimum wages. Because the "minimum necessary" is extremely cost-of-living specific, it's decentralized.
Despite Washington having a State minimum wage of $13.50, Seattle's minimum wage is $16.39/hr.
Despite New York having a State minimum wage of $11.80, New York City's minimum wage is $15/hr
Despite Illinois having a State minimum wage of $11, Chicago's minimum wage is $14/hr.
Despite California having a State minimum wage of $13, San Francisco and Berkeley's minimum wages are $16.07/hr. Emeryville's minimum wage is $16.84/hr. San Jose, Santa Clara, Cupertino, Sunnyvale, Fremont, Belmont, Alameda, El Cerrito, Los Altos, Milpitas, Redwood City, Palo Alto, Richmond, Malibu, Los Angeles, Santa Monica, and Santa Rosa all have minimum wages at or higher than $15/hr.
> Worse yet is that labor data shows that more and more adults are working in minimum wage jobs, so the talking point of "it's just summer jobs for teenagers" and "it's entry level work to move on from" is very out of touch with reality these days. There are millions of people trying to survive on these wage levels and without benefits and it is not working.
Then is it really true that productivity has increased? Millionaires and billionaires are not eating the food of millions of people or occupying hundreds of thousands of apartments and vehicles.
> Many (most) minimum wage jobs do not provide any meaningful benefits, so it's tangential to the minimum wage in most cases.
I think you might be forgetting that most benefits at that wage level come from the government not the employer.
When you count how those benefits have increased since 1968 then minimum wage has never been higher.
This is most particularly true for Medicaid Expandion states since the ACA, but even non-expansion states with the health care tax credits and cost sharing reductions which are worth $10k-$20k per year to a low-income family of four.
This adds about $4/hour to the effective wage of a dual-income family which TFA is just ignoring.
The increasing value and accessibility of SNAP benefits is probably another $1/hour.
Those two things are disconnected. Wages are dictated by supply and demand, not efficiency.
An oversimplified example [with lots of nuances I'm sure people will comment on instead of the original point]: The supply of heart surgeons is small, therefore they can command a larger wage and have their choice of jobs. The supply of burger-flippers is much larger and employers can usually find someone willing to do the labor for cheaper than another person.
The point being, the best way to increase your wage is to switch jobs to something where the supply of applicants is smaller and the demand is strong.
Supply and demand isn't purely about total numbers. it's also about the power to walk away.
This is why employer lobbies are very keen on reducing public benefits (means you are more reliant on having a job) and reducing public sector wages (reduces competition in the labor market).
Essentially. Which is why unionization is such an important process---it binds the supply-demand curve so that employers are forced to allocate the resources more equitably. Supply suddenly dries up if nobody's willing to work for you because you won't pay a living wage (let alone a decent wage).
Well, any way you slice it - through unionization or through legislation - a $24/hour minimum wage is just going to mean massive unemployment, not 3x more money in everybody's paycheck.
I think it depends. If the CEO can make more money selling 200 million whatever than 100 million whatever, they're still going to hire enough to make 200 million, even if they're taking home less than they would in the hypothetical world where they were making 200 million whatever and their bottom-tier employees were on government subsidized housing.
But in the longer term, I think you raise a great point---it's a huge incentive for the CEO to figure out how to automate making 200 million whatever so that they can pay $0. Which is good for the economy in general (automation means more free human time), but societies have to adapt to a lack of labor-intensive jobs to go around.
They already need to be adapting to that, because we're already in the middle of the automation revolution.
I don't think this is cut and dry whatsosever, and in fact I strongly disagree. This is a hotly debated subject. What you suggest aligns with what classical economics predicts, but real world evidence doesn't necessarily back that up.
Personally I don't think it would cause any significant unemployment as long as you don't do it all at once. Based on my own research, the evidence doesn't support minimum wage hikes increasing unemployment, except possibly in the very short term. The logic is basically that because the marginal propensity to consume is so high for low income workers any increase in the minimum wage creates large spikes in demand. No one wants to fire their workforce in the face of increasing demand. Prices go up some then stabilize. Companies bring in more absolute $s, and employ a similar (or even possibly a larger) workforce. It ends up being a redistribution without meaningful negative consequences. The obvious question becomes "why not keep raising it even more then?" and then answer is basically that at some point the MPC drops too low and you stop getting the positive effects, at which point you'd presumably start driving unemployment.
That's obviously an oversimplification, but so is the simple logic that large changes in minimum wage spike unemployment.
Except that's a temporary solution. Eventually the industry moves it to an area where people are willing to do it cheaper; hence why nearly all manufacturing is now done in poorer countries. Not saying this is correct, just commenting on reality.
It's much harder to move making hamburgers to a foreign country.
Those are going to be some terrible hamburgers by the time they're shipped back from Bangladesh to Kansas, and the wait time is going to really change the drive-thru experience. ;)
Doctors are a government-subsidized cartel! (In most places)
They fix the number of Doctors, and, the government usually provides substantial support for education and training.
So not a very good example!
But it's moot - on the 'low end' of wages, basically 40% of the population, people have 0 bargaining power - it's always been like that.
The 'free market' minimum wage would be ~2$ an hour. People would be living in favelas without electricity (or it would be stolen), no healthcare, no car, borderline subsistence living. An entire economy would pop up around that - instead of the 'Dollar store' you'd have the '25 cent' store.
Which is why every advanced nation has minimum wage laws.
The question is though - how much of the 'productivity gains' are from better labour in any ways?
Say for example a company hums along, and in an era of globalization is able to sell 5x more product, yielding really great surpluses. So the investors and execs start to get rich, the staffers get paid the same relatively speaking to inflation, their boat is possibly not lifted but stays the same. They are doing the same work, with the same skills etc..
That's more likely what is happening - labour used to be a commodity, but it's even more of a commodity now.
There are no easy solutions but minimum wage should possibly be hire, the jobs that can't be done at that price should go to Mexico to help that economy develop so they can be purchasers of American exports. Something like that.
I think there's a bad assumption in here, which is that pay should keep pace with productivity gains in the first place.
I'd argue the whole point of productivity gains is that they do outpace pay. The idea is the same work generates more value. Some of that extra value can be passed back to the employee, but if all of it is passed back to the employee, then the goods produced don't actually get cheaper. If nothing gets cheaper, there's no incentive for a business to invest in tech that makes employees more productive.
The data in the piece has a lot of problems with it too, but I think the core assumption is fundamentally off-base.
Yes, and product improvement is largely attributable to R&D, rather than assembly-line-level production. Those gains disproportionately flow to high skill white collar workers.
> so many HN readers that claim that salaries are based on the value created by the employee.
That's because those people are sadly wrong. Salaries have never been based on value created. They have always been based on the minimum a company could pay for the talent they desire.
I think you have to look at the division of the added value by the changes in productivity. Were it something closer to 50-50 that might be reasonable, but so far as I can tell based on changes in wages over time, that's not the case at all.
Totally. I don't think there's anything wrong with saying "Gee, this store is making way more money but its employees are being paid the same, that sucks". I think indexing the minimum wage to inflation makes sense. I think a lot of low-skill jobs should be higher-paid, and I think raising the minimum wage is a good tool in some cases (although I think the people pushing for national increases often overlook the effect that a doubling wage will have in a rural area where the cost of labor really does impact the ability of a smaller store to stay open).
My point is just that I don't think "wages should keep pace with productivity" is true. If wages always rose with productivity, we'd be focusing all the gains on the people in the sectors where productivity is growing, and not lowering the cost of goods for everybody else.
It depends on why productivity is increasing. Generally speaking, the employer is pushing productivity increases (implementing better processes like assembly lines, buying equipment that lets an employee do more, etc). If the employer is pushing the increases, they need some incentive to do that.
Often that incentive is making goods cheaper, so they're more competitive. That's a huge generalization, but it makes the point that there's nothing wrong with productivity gains outpacing wages.
> if all of it is passed back to the employee, then the goods produced don't actually get cheaper.
There's a spectrum between none and all.
Also, why wouldn't goods get cheaper? Scaling up production is easy so it's not a supply issue. There would be two outcomes: people would buy more goods overall (as has happened over time) or they would work less and enjoy more leisure time.
But isn't this the cause of inequality? If you can't pay commensurate with productivity, a larger share of capital flows to capital owners and you stretch out the exponential curve. There are humans on the other side of the equation and there are other costs besides labor involved with operations.
There's a reason why common good capitalism is an increasingly attractive model for a lot of folks. A society cannot maintain the maximize returns to capital model indefinitely. I think many people are realizing that Friedman's economics either cannot be sustained or lead to a place where many would prefer not to go. People, and therefore the invisible hand, are inherently flawed.
No bad assumption here: people say that productivity growth and wage growth ought be the same. If this was not the case, then in the long run 100% of value added would go to capital!
Of course this does not mean that the productivity gains should directly translate into wages.
The article argues that “the minimum wage should keep pace with productivity growth,” not “pay should keep pace with productivity gains.”
Suppose a business with a profit margin of 20% increases its revenue by 10% without increasing labour input. If the owner captures that 10%, the profit margin is now 27%. If the revenue is paid out as higher wages (“pay keeps pace with productivity gains”), the profit margin falls to 18%. If wages increase by 10% (“pay keeps pace with productivity growth”), the profit margin remains constant and profit can also increase by 10%.
What happens to the profit margin of individual businesses will vary. But across the entire economy, it’s reasonable to expect that the wage share will remain pretty constant, and until the 1980s, it did. https://en.wikipedia.org/wiki/Wage_share
These are relative terms. Let's say in 1980 I was flipping burgers for $3 an hour and making $10 for the company. Let's (just for the sake of argument, ignore inflation) say in 2020 I'm making $20 for the company. For my pay to keep pace with productivity gains I'd be making $6 an hour, leaving my employer $7 better off (they were making $7, now $14). My pay would've kept pace with productvity - it doubled, my pay doubled.
When people say that "wages kept pace with productivity growth" that's what they're saying - that a 10% increase in productivity resulted ina 10% increase in pay, not a $10 increase in productivity resulted ina $10 increase in pay.
I'm going to pose this question more in the context of their analysis and without consideration to anything else.
There have been a myriad of studies which try to link minimum wage to worker productivity and the default assumption is always that the worker should bear the fruit of all productivity gains. Why is this the case? Often, it is not the worker who was responsible for the capital investments that increased his/her productivity.
A couple crude examples to illustrate my opposition to this notion:
- My employer pays me to create web applications. We agreed on a rate (could be 10 money units per hour OR 100 money units per application). My performance is assessed throughout my employment to see if my productivity is satisfactory for my rate. Maybe my employer refuses to invest in any tooling for me and I have to use vim to write all my code. If they then invest in an IntelliJ license for me (thanks employer!) and I am more productive, should I be paid more? Debatably, my job didn't get easier/harder. Now if I invest in the tooling myself, and am paid per application, I should get paid more; this often isn't the case.
- In 1956 if my laundromat employer paid me to wash clothes, I was probably doing it by hand and maybe getting 3-5 pounds of clothes done per hour. My wage (likely minimum) would be $1/hr. In 2020, we have laundry machines that can do 20 pounds of clothes every 30 minutes. $1/hr (of 1956 money) would be roughly $10/hr in 2020. No one would suggest that we pay someone upwards of $100/hr to run a laundry machine (unless the worker was paid per pound of laundry done and personally made the investment in the machine). It likely wouldn't even be a job if the minimum wage was $24/hr today.
It seems like these analysis of what the minimum wage should be should take into account that technology and capital investments have made a lot of jobs either lower skilled or less valuable. I'm not sure how to quantify the lack of job creation in sectors that would warrant $24/hr. Another option would be to pay workers directly for their output but this would have other consequences. Starbucks invests in making baristas efficient so they can handle the morning rush but pays them just the same for the afternoon lull.
Caveat that I am pretty ignorant to this so I may be wrong but I do not believe a low floor is what is driving wages down.
Your assumption that wage should align to productivity is false. It’s pretty hard to justify some athlete and artist wages this way, you have to really stretch what it means to be “productive”
Wage aligns with replaceability - how easy is it to replace you? Professional athletes are hard to replace, doctors less so, cashiers even less.
Wages are driving down because, unless you get lucky, there’s not much to do. Big companies chop up specialized roles into a hundred “dumb” ones so people can be easily replaced.
Many comments are focused on "But why should minimum wage jobs pay scale rise with productivity? The jobs haven't gotten any more demanding."
But isn't this logic applied to average CEO pay, which has gone up many times faster than productivity? CEOs work isn't any more demanding than it used to be, either.
Wages have little to do with productivity and everything to do with bargaining power. CEOs are paid well because we expect them to be and they can demand it, irrespective of their actual contributions to the success of the company. But for some reason only the worker must justify his pay.
CEOs are broadly speaking benchmarked on return on equity for investors. They receive high salaries in anticipation of their doing a good job, and if they don't they're removed. Further, a disproportionate amount of their compensation is equity based to align their incentives. I'm not saying it's right or wrong, just that they are expected to justify their pay too.
I won't claim the system isn't corrupt at all... but if you were taking a job where the expectations were ridiculously high and there was a pretty chance you'd get fired possibly for things outside of your control, and in a way that would end your career because your failure would be so public if you screwed up, wouldn't you demand the golden parachute as insurance?
True often the golden parachutes are way too high compared to realistic performance bonuses. But if you think of that as insurance - the board and the CEO both know this is risky, so they negotiate a fixed golden parachute just in case it doesn't work out - otherwise why would someone who wouldn't get fired take the job, since they wouldn't want to risk the downside?
This is self-fulfilling. There is a claim that CEOs are well paid because they're in high demand. The truth is that it's actually difficult to find someone who will work for minimum wage in a In-n-Out burger in San Jose. It's easy to find a dozen qualified candidates for CEO - hell, half of them are CEOs at similar smaller companies and the other half are CxOs/SVPs at the company you're hiring for. The myth is that you need some massive salary to attract the best, whereas what actually happens is you hire who you would've hired anyway, but you pay them a massive premium.
> The myth is that you need some massive salary to attract the best, whereas what actually happens is you hire who you would've hired anyway, but you pay them a massive premium.
Microsoft’s market capitalization has more than doubled during Satya Nadella’s tenure as CEO. When Steve Ballmet quit as CEO the market cap jumped over $100 million. That kind of difference is why companies pay extremely well for top CEO talent. Management is a skill, some people are really great at managing large, complex, profitable organizations and they’re worth a lot of money.
It is obvious to me that pushing a broom has not gotten more complex over the last hundred years. It is significantly less obvious that being a CEO has not gotten more complex over the last hundred years.
There are many millions of busses to drive, bags to load, passengers to drive around, trash bins to empty, and floors to be swept, vacuumed, and mopped. I think perhaps you underestimate the massive size of the unskilled job market.
Busses are definitely a specific skill requiring specific certification. I don't know if dedicated bag loaders exist these days but everyone has other job requirements. While yes, the market for low skill jobs is large, I think you're still diminishing these roles.
CEO wage depends on company size: big companies are willing to pay A LOT for a CEO which screws up with 1% less chance.
Other jobs (be it janitor, software engineer) don't scale up as much with company size, since the single tasks remain the same.
So a big reason CEO wages grew is that companies became massive.
> CEOs work isn't any more demanding than it used to be, either.
I think it has, actually. The CEO's job became more complicated as a result of the increased complexity in the world. There used to be only brick-and-mortar and mail order, now there is internet. They used to advertise on tv, radio, and newspaper. Now they can advertise tv, radio, newspaper, online ads, and social media influencers. They didn't have to worry about ransomware, now they do. And so on.
Has it gotten 10x harder? Was running the vast agglomeration of companies that was ITT really less difficult than running today's sprawling companies? Do you think the CEOs of today's companies get into the nitty gritty of all of those issues you talk about, or do they, as always, delegate the real work of understanding those issues to their subordinates?
Setting direction for others has always been the job, and the difficulty of that can vary.
If we measure a CEO’s job difficulty based on how many years a typical company in their industry can safely operate while stagnating, then the job has become many times more difficult in the last 40 years in some industries. In others, perhaps only twice as difficult.
That is not to say that salaries should stay high, but we would look for reduction to come from systemic productivity gains in management that have come to other white collar professions: software, more efficient management hierarchies, cultural changes in communication, etc.
I’m not sure it can be quantified except perhaps by something like “amount of money necessary to motivate a sufficiently skilled person to do this job.”
I’m certain that they delegate those issues to subordinates; do you feel that there is skill involved in managing and supervising subordinates, and melding their disparate opinions into a coherent and profitable direction for the company?
It’s more complex but I would say the job itself is actually easier. I think managing a company with letters, written notes, and phone calls would be much more challenging.
In a very simplistic way, shouldn't the average wage keep pace with the average productivity gains and the minimum wage keep pace with the minimum productivity gains? I can see the average farmer making huge productivity strides, since they use much more complex combines, and irrigation systems and such, but did the productivity of a burger flipper go up similarly?
> In a very simplistic way, shouldn't the average wage keep pace with the average productivity gains and the minimum wage keep pace with the minimum productivity gains?
That's for sure. This is an article that makes an appeal to fairness though. The underlying message is "the rich are getting richer, and the poor are getting poorer". So, if you want to follow the argument of fairness, should the wage of the minimum wage workers grow at the same rate as the average productivity for the nation, or as the rate of the productivity gains for the minimum wage workers? If it's the latter, then it's quite likely that the productivity of the lower end jobs did not see a whole lot of gains.
> This is an article that makes an appeal to fairness though.
Right... but there's absolutely no mechanism to achieve anything apart from through the market (for the private sector.) You can argue all you want, but nothing will happen. Nobody (to an approximation) is going to voluntarily pay more for an abstract concept of fairness.
Productivity growth at the bottom end is very low, but wages at the bottom end still need to keep up with the cost of living or people who are in minimum wage jobs will no longer earn enough to survive.
That was exactly my thinking. So the argument is that the minimum wage should keep pace with the cost of living. We, as a society, need to help those who were less fortunate than us, and it make sense to make an appeal to compassion.
This article is trying to argue something else entirely. That we as a society are collectively screwing those less fortunate. The productivity has gone up, and the gains from the productivity go to the rich rather than the poor. While this might be true in principle, this article fails to provide the evidence, as the entire premise is flawed.
This is not how it works in actuality [0]. Wages are market, not productivity, driven. Even if particular work-field doesn’t increase in productivity, aggregate wage increases (due to perhaps aggregate productivity increases or change in labor relations) cause salary increase. Similarly, productivity increases don’t themselves cause salary increases.
Real life example, factory worker productivity rose dramatically with automation, and salaries did not keep up. Physician productivity did not increase much but salaries grew.
Minimum wages are inconsistent with the idea that people should be paid strictly according to their productivity. If society becomes more productive overall, as a matter of fairness I think that “should” result in the minimum wage being increased. The lowest-paid workers “should” enjoy better living conditions today than they did in the 1980s. Productivity gains across the entire economy are easier to quantify than “living conditions,” so I think the article makes a good case that the minimum wage “should” be significantly higher than it is now.
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[ 4.9 ms ] story [ 444 ms ] thread[1]https://en.wikipedia.org/wiki/List_of_countries_by_average_w... [2]https://data.oecd.org/emp/hours-worked.htm
> If Worker Pay Had Kept Pace With Productivity Gains Since 1968, Today's Minimum Wage Would Be $24 an Hour
It looks like when it was shortened one of its most important words were dropped.
(I have, with some shorter suggestions.)
It's an interesting question in its own right. Do the very lowest paid people in the economy have it better or worse than 50 years ago. I don't know the full answer to that question, but I do know that in 1968 about 5% of American households didn't have full indoor plumbing.[2] Just based on that datum, I'd much rather trade places with a very poor American in 2020 than 1968.
[1] https://www.bls.gov/opub/reports/minimum-wage/2017/home.htm [2] https://www.aceee.org/files/proceedings/2004/data/papers/SS0...
I even met people whose diet consisted mainly of expired food. They had to fish it out of dumpsters, which wasn't nice. But they had free food!
>The wage distribution is right-skewed; the majority of people earn less than the average wage. For an alternative measure, the median household income uses median instead of average.
Unfortunately I'm having a hard time finding the median number of annual hours worked. But using the average hours worked, that puts the median worker at $20/hr.
Obviously not perfect unless we can get the median hours worked.
Also, like other commenters have said, I don't think anyone has ever claimed that the bulk of productivity gains will go equally to the minimum wage as the median wage, since the latter is usually pretty low leverage work in general.
Interesting to see how those numbers aren’t as drastically different from my country as I’d assumed.
Even then, the median annual wage divided by the median annual number of hours worked won't necessarily be equal to the median hourly wage.
Median is the appropriate statistic for such cases.
https://fred.stlouisfed.org/graph/?g=bOfK
Note the increasing spread between GDP/household and median income. That's the US's entire socioeconomic problem--from rising consumer debt levels, rising deaths of despair, and the rise of reactionary politics--shown in one chart. The median person is falling behind.
It's fine if you want to focus on median wages, but at the same time you need to compare against the median worker's economic output- not aggregate productivity. Otherwise you're just comparing apples to oranges.
https://totalfood.com/busting-restaurant-labor-cost-myth/
1) economies of scale, factory farming employs very few people per pound of meat produced, having been subject to a lot of automation. Likewise, supply chain areas like storage and shipping move a lot of product per employee.
2) 'butchers' and similar jobs are relatively high skill and likely pay above minimum wage anyways. They also have better economies of scale. But at any rate, it's unlikely professional butchers are particularly involved in producing meat for fast food burgers and likely 1 or 2 low wage employees in a factory are doing all the manual labour involved in producing meat for hundreds of burgers.
At any rate, I don't think the null hypothesis can really be that every level of the supply chain has the same level of labour costs.
As a nit to my original post, butchers was more meant to be representative of a class of service that is relied on by consumer-level providers. I think we can agree that it is fair to assume there are more than just first-order workers who make less than $24 a hour in most supply chains these days.
It seems awfully dangerous to think that we should pay people less because otherwise things would be expensive.
This is exactly why/how wealth is moving up and up to a smaller proportion of people at the top
You're assuming that's why I was asking.
If you're asking for an actual number of the price of a Cheeseburger and a Shake? I don't know, but it may be a number that's ultimately better for society?
https://www.businessinsider.com/denmark-mcdonalds-pays-20-an...
Completely anecdotally, improvements in labor productivity due to automation (etc) are less likely to be impactful in jobs like waiting tables, delivering newspapers or flipping hamburgers.
That anecdotal evidence is backed by research that shows that service sector productivity tends to lag other sectors significantly.
When I was a teenager, food service proved to be a much more complicated job than I anticipated it to be. My first tech jobs paid better (even though an internship would have paid more), and felt simpler. If only because I'd spread out the effort of learning the skills over 8 years instead of 3 months.
Given an example of warehouse workers, and how companies are enacting more and more automated "anti-slacking" restrictions, yeah, I think we are.
The on-campus tech job paid about 10% more, day 1, than any of my friends were making. So I used the higher pay and all the tricks my roommates taught be for frugal living and cut back my hours about 25%.
I tried not to brag about it. I even felt a little guilty about how hard they were busting their asses, while I had a job where I could automate the tedious bits myself, and once I was not low man on the totempole I could delegate other parts.
PSA: Be nice to your food service staff. And your janitors. Instead of thanking god it's them instead of you, be grateful someone else took that shit job so you don't have to cook and clean up after yourself.
That will mean they get paid less than an entry level but skilled tech job.
I sometimes miss the mindless simplicity of the work. I miss knowing exactly what I need to be doing every day.
But I certainly don't miss with dealing with the general public, where a very vocal minority has decided that it is socially acceptable to yell at service workers. It's even worse when it's their own mistake, like they ask for mustard when they meant honey mustard, and somehow I'M the idiot for not knowing which one they meant.
Or they ask for "light mayo" and I ask them to clarify if they meant a small amount of mayo, or the low-fat mayo, and they snap an answer back at me as if I was being a smart-ass. The answers were close to 50/50 by the way.
Damn maybe I don't miss it after all. I could go on for hours about how shitty some customers can be.
yeah I don't really miss stuff like that. although as I've gotten older, I've started to appreciate people who are overtly hostile. at least you know where they stand. I find it much harder to gauge people's intentions in white-collar land.
Why would we tie minimum wage to worker productivity OR inflation?
What is the minimum wage trying to accomplish in the first place?
It seems obvious to me that we have to index it to the living wage instead.
A full-time job needs to cover: one half of a 2-bedroom apartment in the outskirts of town, plus food, bills, and basic medical expenses. If it doesn't cover this, then this person is going to rely on government programs.
And if the government programs aren't there, they'll be coming home each night after a full day of work and watching their kid get skinnier, seeing their CEO collect multimillion dollar bonuses in the news, and you can be damn sure they won't stand for it. They'd unionize, protest, and demand higher compensation.
Our social safety nets are an important part of our society, but when they're required and used by full-time employees, it's something of a taxpayer subsidy for the corporations who can now pay their employees less than what's required to live.
And if a job can't be done profitably for a living wage, we need to let that job go. Automate it, outsource it, let the companies that depend on this exploitative labor pivot to new business models, or let them wither and die. The jobs are going to leave eventually anyway - we might as well accelerate the push toward a modern labor economy that's already underway. We can funnel the productivity gains from automation into education, to allow the displaced a chance to retool and learn a new skill, and to bulk up our social safety nets for those who are too old to do so.
Bosses and owners are only interested if there's something in it for them. As in does it increase our output without a proportional increase in costs. The bigger the gap the more social capital I will burn on making that change (including, but not limited to, fucking over my loyal employees by replacing half of them with a machine, or imports).
We would have barely any of those productivity gains if they didn't also lower the cost of labor per item. So this number is a largely hypothetical. And perhaps a little unhealthy to dwell on.
Conversely, though, if minimum wage had kept pace with inflation, we might see higher productivity today because process people would have had the ammunition to push for more and bigger improvements to production and overhead costs. New equipment would be rolled out sooner while prices were still high, making a steeper adoption curve and accelerating R&D expenditure.
Still, it would be better if management did not try to keep 99% of every dollar saved. We could easily see a world where, instead of the $12/hr we should have simply to maintain the spirit of the minimum wage as it was conceived, everybody had Seattle's $15/hr minimum wage and big cities were trying to legislate for $20.
So if their job could be replaced with simple script....
Why would I want to do a job that can be scripted?
There are all kinds of things in life that contemporary culture encourages us to stop doing and instead pay someone else to do on our behalf. While division of labor is almost certainly a net gain for human comfort and quality of life, that doesn't mean it's always the appropriate thing to do.
Productivity is a ceiling on wages; once wages raise beyond a certain point, the company will take a loss, even after passing down the cost of labor to customers.
Wages not keeping up with productivity gains isn't just on the low end. Seeing how well they tracked before 1970, there was an overall labor shortage. Around 1970, that changed, and there was more labor than the market needed, so wages were kept low enough that it's cheaper to pay someone minimum wage to take your order than to install an order kiosk.
That's not to say we shouldn't work to improve the average worker's wealth and quality of life, of course! I'm all in favor. But it's not a matter of gains getting "sucked up" from where they naturally would have gone; recent gains in manufacturing productivity just aren't at the individual level in the first place.
There are of course different ways to organize that capital. Capital can be owned by rich people, by corporate firms, by the government, by worker collectives. But it's still a finite resource. As a matter of mathematical inequality, there's no way to give everyone the power to direct a large factory.
Looking farther into the future, with AI and robotic labor, it's quite possible that everyone would have the capital to direct a large factory. As it stands now, it appears likely that any such robotic future would be owned almost exclusively by a tiny fraction of humanity.
- productive output increases
- wages remain the same
- the length of the working day remains the same
then you have gains accruing to the capitalists and not the workers. (In the case where wages also increase but at a lower rate than productive output, gains are accruing to both capital and labor but disproportionately so to capital)
I always thought that cost of living dictated wages and the so-called wage stagnation was due to relative lack of inflation for basic living expenses over the past 20 years.
Also the past 20 years have seen a relative large influx of immigration compared to the previous 20 years. Increasing the competition between workers and would in turn lowering wages, at least according to supply/demand forces. This effect would be especially pronounced for minimum wage workers but with the expansion of the H1B program it will soon be observed for high income tech workers as well.
This is when minimum wage should come in, and this would be an argument for increasing minimum wage to that end, but businesses themselves can just ignore these kinds of arguments. Certain benevolent PR acts run contrary to this where they do increase wages because it's the right thing to do.
The interests of individual firms are not aligned with the interests of the broader economy. It's in the interest of every firm to pay its workers as little as possible, but it's in the interest of the broader economy that most people can afford to buy goods and services. Every employee's wage is ultimately some other firm's income; keeping the game going requires that enough people are paid enough money to be able to spend it on things other than absolute essentials.
Even minimum wage workers have to pay for the basic necessities of life at prices that are largely set on the basis of what the median worker can afford. If minimum wages erode, minimum wage workers can't afford to live. This is a both a humanitarian concern and an economic problem because starving people don't make good employees, and people who don't have money can't buy goods and services from other firms. Every person who is pushed out of the economy in this way is an economic loss as they are no longer contributing to economic demand or producing goods/services with their own hands.
In a society with a social safety net, under-paid workers are also a cost to government as they will not pay taxes and will be due social assistance payments/transfers to help cover their costs for food and shelter. Further, underpaid workers may also pose a crime problem (in part because starving people will steal food), which imposes direct costs on crime victims and costs to government for police, prosecution, and corrections.
Underpaying workers benefits firms that do it, but the practice harms the overall economy and imposes externalities on others. Preventing this is why minimum wage laws exist and should keep up with the cost of living.
Social safety nets are typically paid for via progressive taxation, the burden for which falls on the rich. In the alternative, the employer covers that cost and passes it on to buyers in the form of higher prices. Higher prices affect rich and poor equally. There's arguably social value in having the government pay for that safety net: and it's lower prices for lower and middle class consumers.
If they are being paid enough to live I don’t see anything malicious. If people want a higher paying job, they should learn a more coveted skill.
If productivity improves, but wages are indexed only to inflation, then the rich get richer and the poor at best stay the same. They produce more but don't see their lives get better. In a country that has produced so much additional wealth, it would be nice if the people who produce it became themselves better off, rather than have the gains concentrate in a smaller and smaller minority.
The minimum wage doesn't just stagnate. It's not inflation-indexed, so inflation eats into it: it hasn't increased since 2009, and even though we're often below the Fed's target rate, inflation has still reduced the value of that by 20%. That suggests it's time to raise it, and the $24/hour figure helps put the quantity into context. It makes a $15/hour wage seem very doable, since it's less than half of the productivity increase.
And wouldn't the cost of the subsidy mainly be spread across the upper end of the middle class and not the employers, making it be a net benefit for the employers?
Walmart for instance already has a huge emphasis on setting their employees up with welfare and using that to pay them a below living wage, why would expanding that system convince employers to pay more?
Because the market rate for labor doesn't always work out to equal a "living wage". Markets are remarkably good at bringing down the price of goods & services, but that necessarily means that they also bring down the price of labor, which is an input. While this is good for most people, it's obviously less good for those workers that are engaged in low leverage work where net-productivity hasn't changed. As a society, we should help those workers via welfare.
Most of the structures of UBI I've seen seem like a massive redistribution scheme to the wealthy.
Not for all goods & services. The consumer price index has been falling for most goods & services with the notable exception of healthcare, housing, education, and (to a lesser degree) food.
https://howmuch.net/articles/price-changes-in-usa-in-past-20...
The only way to prove that “market forces do not reduce prices” is if all goods & services are provisioned through purely market forces, and the CPI still increases. But not all goods & services are provisioned through purely market forces.
The price of food in particular is largely dictated by the price of low wage labor, and minimum wage laws bring that up, despite productivity improvements elsewhere in the supply chain. In other words, the consumer price index for food could drop if the cost of labor wasn't constrained.
> Most of the structures of UBI I've seen seem like a massive redistribution scheme to the wealthy.
Only true for landlords, but that's because the supply of housing is artificially constrained by zoning regulations. If we fix that, then this becomes less true.
Yes, some sub indices have gone up, others have gone down. That doesn't change the fact that _overall_ the CPI has gone up over time. Wages have been having an inverse relationship with prices overall. This is not a case of "prices are cheaper so the wages are less too".
> The only way to prove that “market forces do not reduce prices”
I'm not sure why you're putting in quotes something I didn't say.
> Only true for landlords, but that's because the supply of housing is artificially constrained by zoning regulations. If we fix that, then this becomes less true.
No it's true for all employers that would have had to pay a living wage and now don't because the middle class will subsidize their labor costs.
First of all, wages have not universally been in an inverse relationship with price. For example, the median wage has gone up, in real terms, no matter which inflation index you use -> https://twitter.com/Noahpinion/status/1307793622369103872
Second of all, the minimum wage has absolutely increased in most of the US, via state and local minimum wage laws -> https://news.ycombinator.com/item?id=24733559. This is reflected in the urban price of food (CPI-U), which is comparatively more sensitive to labor prices, as an input. In other words the argument isn't "prices are cheaper so the wages are less too", it's "wages are higher, so are the prices". While you may be correct that the minimum wage increases are not always sufficient to outpace overall CPI, they more than outpace CPI for food (less labor), which is why the CPI for food has moderately increased once you include labor.
The goods & services for which CPI has dramatically increased have very little to do with low-wage labor (for now), and the root causes are more sector-specific (zoning, guaranteed loans, lack of price transparency, lack of supply etc)
> I'm not sure why you're putting in quotes something I didn't say.
I apologize, I was paraphrasing. That said, that was essentially your assertion: that if markets do actually bring down prices, then the CPI should have fallen. But that presupposes that all goods & services are delivered purely through unfettered markets, which is not the case.
> No it's true for all employers that would have had to pay a living wage and now don't because the middle class will subsidize their labor costs.
No matter what, the employer never pays that living wage. It's either passed on to the consumer in the form of price increases, or it's paid for by society through subsidy.
I've found it helpful to visualize what this looks like with a concrete example:
Imagine a pizza maker's market value is (say) $5/hour. They are able to produce (for simplicity's sake) 5 pizza's per hour, or $1/pizza. Including other operating costs + 3-5% profit margin (that's the average for most restaurants), let's say that the pizza sells for $5. Thus the pizza maker can expect to earn $40/day, on the market. Suppose, due to rising rents and healthcare costs, the "livable minimum wage" should be $15/hour, or $120/day. There are 2 ways to guarantee this:
A) The government deposits an extra $80 to the worker, allowing them to make $120 that day. They can buy a pizza for $5, which is about 4% of their daily wage.
B) The government mandates a minimum wage of $15/hour, which means that the labor portion of the pizza cost goes up from $1 to $3 per pizza (at the same rate of 5 pizzas per hour). The pizza now sells for $7 so that the shop doesn't go out of business. The worker makes $120/day, and can buy a pizza for $7, which is about 6% of their daily wage.
Notice that in (B), the worker is actually worse off, even though they have the same amount of money in their pocket. The worker has to pay a higher percentage of their pay to afford to eat, but this $2 extra means absolutely nothing to a millionaire, it's pennies to a rich person. In scenario (A), the worker is better off, and the welfare system that sustains it can be funded through progressive taxes, which targets rich people.
First off, don't cite unsourced one-off tweets if you want to be taken seriously.
Secondly, yes, wages have gone up... since WWII. This entire discussion has been about the stagnation of median wages since the late 70s.
> But that presupposes that all goods & services are delivered purely through unfettered markets, which is not the case.
In no case are we talking about unfettered markets, so that has no bearing here. We're talking about the regulatory env of today contrasted with a UBI which is far from unfettered markets.
> No matter what, the employer never pays that living wage....
Continuing to follow that logic nobody pays for anything. "Employers don't really pay for labor" is an incredibly hot take I wasn't expecting to defend against today. If a business transitions from unprofitable to profitable by slashing wages, and sticks that profit in the bank, where did that money come from?
This assumes an unconstrained "market" for the exchange of labor and wages, just as the claim that "prices are a function of the scarcity of goods" assumes an unconstrained "market" for the exchanges of goods and money.
But this is not the only model for economic exchanges of labor, goods and money. The Romans, for example, did not use market pricing, but instead were primarily a "cost-plus" economy (you paid the cost plus a known margin).
I know it is extremely hard when most of us have been embedded in a neoliberal, market-centric culture for our entire lives to think this far outside the box, but there really is no law of nature that says that what I pay you to do work for me must depend on how many other people could do the work.
In a culture that viewed the economy as a tool to enhance the living standards and quality for all of its members, there might be a very weak or even non-existent connection between labor availability and wages. Productivity gains could be viewed as way to either (a) reduce the amount of labor required (b) increase the amount of goods & services available, or both. Wages could remain fixed, or increase in such a scenario.
This is nothing like the economic system in which we live, however; an economic system that is viewed as a playground in which which some will accumulate vast resources (and thus power) and others will not can never function the way I just described.
That some theoretical other economy might exist does not belie the one this article discusses correlates wages and scarcity of labor, nor does it preclude anyone from making different decisions about pricing their own labor.
There is a fantastic long form article that articulates this better than I can at:
https://highline.huffingtonpost.com/articles/en/poor-millenn...
The portion relevant to this discussion:
"Thirty years ago, she says, you could walk into any hotel in America and everyone in the building, from the cleaners to the security guards to the bartenders, was a direct hire, each worker on the same pay scale and enjoying the same benefits as everyone else. Today, they’re almost all indirect hires, employees of random, anonymous contracting companies: Laundry Inc., Rent-A-Guard Inc., Watery Margarita Inc. In 2015, the Government Accountability Office estimated that 40 percent of American workers were employed under some sort of “contingent” arrangement like this—from barbers to midwives to nuclear waste inspectors to symphony cellists. Since the downturn, the industry that has added the most jobs is not tech or retail or nursing. It is “temporary help services”—all the small, no-brand contractors who recruit workers and rent them out to bigger companies.
The effect of all this “domestic outsourcing”—and, let’s be honest, its actual purpose—is that workers get a lot less out of their jobs than they used to. One of Batt’s papers found that employees lose up to 40 percent of their salary when they’re “re-classified” as contractors. In 2013, the city of Memphis reportedly cut wages from $15 an hour to $10 after it fired its school bus drivers and forced them to reapply through a staffing agency. Some Walmart “lumpers,” the warehouse workers who carry boxes from trucks to shelves, have to show up every morning but only get paid if there’s enough work for them that day."
The productivity gains went to either things that got automated (e.g. speciality equipment operator - wages are higher but there are less jobs) or knowledge workers (software engineering salaries have skyrocketed).
The wages in lots of sectors without productivity gains have gone up because they must compete against sectors where productivity has gone up. This is known as Baumol's Cost Disease.[0]
[0] https://en.wikipedia.org/wiki/Baumol%27s_cost_disease
It's not a coincidence that there is a rotating crew of Russian speaking janitors who clean my office building and Spanish speaking landscapers outside my apartment. I'm not discounting that many of them are legal immigrants, just lower skilled and working their way on up. More power to them.
I can also see though how this situation is easily taken advantage of. Contracting firm hires undocumented workers for below market rates and is able to under bid for contracts. Big company fires their in house workers to save money and hires the contracting firm. Big company then gets the advantage of undocumented labor wages without the liability.
Wages are a function of supply and demand. If the people cleaning hotels had better options, their wages would go up (or hotels would shut down, or ask people to clean their own room before they leave, etc.)
Agency work is extremely common here, especially on the lower level of the job ladder. Gig economy and contractors are common even in higher settings, such as software development.
Oh, you all weren't paid for your overtime? Sorry, you don't work for Hilton. You work for Rent-a-Janitor. And they just filed for bankruptcy and closed shop. Hilton had previously dropped their contract with them due to their unscrupulous practices. We have now contracted with a totally different company, Rent-a-Janitor 2.
(This is a made up example. I have no idea if Hilton does anything like this, but most all huge companies do it.)
It doesn't, you're literally paying a middleman to take away the risk and hassle of hiring an employee. That's the added value here.
Otherwise, you could just hire the worker directly for what that middleman is paying them. Working as a contractor, you get a pretty good idea of what your "rights" are worth in pure dollar terms.
* X is available more cheaply from a third party supplier (who presumably has achieved some kinds of economies of scale) than our fully-loaded cost to deliver the same
* X is a commodity product where we do not feel we can differentiate ourselves by doing it in-house
* X is ancillary, but important, to our core business and we lack the expertise to do it well, so we will buy in rather than build that expertise
Not many hotels are bothering to drill their own wells these days, bearing in mind that water is available from utility suppliers - why would room cleaning service be immune from the same forces?
* Purchasing X through a third party allows us to circumvent laws and regulations meant to protect workers and/or consumers
You can argue that such agencies are more likely to disregard laws and regulations, but how would you fix that? With laws and regulations?
I can think of a couple different legal metaphors for this:
1. Something similar to banking's Know-Your-Customer could work... maybe call it Know-Your-Suppliers.
2. People are criminally liable for possessing child pornography even if they had no participation in the direct crimes of its creation. In other words: in this case there is no immunity just because the crimes happened somewhere "upstream".
For instance, how likely are your Fly-by-night employee or sub-sub-contractor to rat out the Fly-by-night? They may get a beating, their checks withheld, the Fly-by-night go under.
If it still happens, Big Publicly Listed company pays for it to go away in a settlement.
If it goes to court, they Big Company can say "we work very diligently to avoid this situation in the future and what happened is in no way indicative of our values".
Etc.
It's sometimes difficult to fire employees as a way of lowering wages. The people left behind who are expected to make up for that through raised workloads and losing the experienced for green new hires might complain.
But if the employee is via third party, there is no hiring or firing involved, limiting the liability of the first company.
In that regard the sales pitch is similar to how Microsoft can sell a company email and word processing so that the company doesn't have to figure out how to write business software.
All the rest are contract. Desk clerks, cooks, nurses, doctors, therapists, janatorial....
The degree to which both costs and risk are shifted onto workers is at times astonishing:
“After paying about $1,500 for home office equipment: a computer, two headsets and a phone line dedicated to Arise; after paying Arise to run a check on her background; after passing Arise’s voice-assessment test and signing Arise’s nondisclosure form; after paying for and passing Arise’s introductory training, to which she devoted three days, unpaid; after paying for and passing a certification course to provide customer service for Arise client AT&T, to which she devoted 44 unpaid days; after then being informed she had to get more training yet — an additional 10 days, for which she was told she would be paid, but wasn’t; and then, after finally getting a chance to sign up for hours and do work for which she would be paid (except for her time spent waiting for technical support, or researching customer issues, or huddling with supervisors), Tami Pendergraft spent three weeks fielding telephone calls from AT&T customers, after which she received a single paycheck.
For $96.12.”
Thankfully some law firms have taken the approach to overwhelm Arise with individual arbitration claims. Arise likely calculated in to their model as a cost of business expense, so the best that can be done is to make that expense grow.
The root cause is the demand for that type of labor is dwarfed by supply for type of labor, and the long lasting solution would be to provide those people with better options.
Plus again scale shifts profits away from labor: https://economics.mit.edu/files/12979
If you feel strongly against arbitration clauses, activism to get people to use them is the fastest way to kill them as the cost benefit will quickly become a negative.
https://www.theverge.com/2020/2/12/21135474/doordash-workers...
Ok not really almost, but for a brief second.
In the meantime create a tool to allow for mass arbitration actions.
Or forbid it entirely.
What exactly is the problem with writing a law to stop an abusive practice?
I see mandatory arbitration as a trade-off, and would simply prefer that people take that kind of clause into account when they transact with others.
AT&T and Arise are not people. People made these decisions and put Tami in this position. We should use their names.
But getting to the core of your point, how would you allocate blame? Is the CEO responsible for every mistake? Do you part it out to various levels of management, based on their involvement with this specific case? Do you think it's better if more corporations copy Google's approach, and outsource all the low-wage work to avoid bring blamed for problems?
To be clear, I am not sure who is to blame for what, but I think the real problem is a shortage of opportunities for people at the bottom of the corporate ladder (as well as for those struggling to get on it). The average HNer isn't protected from exploitation by laws, they are protected by their BATNA (best alternative to a negotiated agreement).
In general with larger corporations this feels like it makes the most sense. With resources like LinkedIn it should be a lot easier to determine the person or person(s) in charge of these decisions along with the CEO.
Here in Michigan we had a front row seat to this happening with manufacturing. Everything peaked in 1973 and has been on a slow decline ever since. Sure there have been booms but the long term trend has been down.
The Japanese started importing cheap motorcycles to the West coast, then cheap cars. We didn't see them in Michigan and if auto execs did they would have laughed. The Big 3 saw VW and their Beetle as the big import threat. Suddenly those Japanese cars became better in quality. Then the Koreans went through the same cycle and Japan introduced luxury cars as well.
Because wages were much less in Asia even after accounting for shipping this exerted downward pressure on wages. Give America back the monopoly it had in the fifties and sixties and minimum wage would be $24 an hour.
As you said, oil helps, but it’s not determinative. Norway is interesting in that they’ve used their oil money very wisely, but it seems pretty clear that other policies are necessary in order to ensure that economic prosperity is well distributed.
https://en.wikipedia.org/wiki/Scandinavia#Use_of_Nordic_coun...
Then it's often interesting to point to various places in the world where in fact, the thing is possible.
Unless you're saying that the problem is that the US doesn't make every new auto manufacturer a UAW shop with no opt-out?
The US specifically did not want this to happen, which is why it made unionization only valid on the basis of the adversarial, shop-vote model, but grandfathering in some unions that already functioned along similar, sectoral lines, such as the Hollywood unions.
Why do those other people get some automatic raise?
Because other people are constantly told how great Europe/Scandinavia is. So these 'other people' just want to have good life by moving there.
It would take a lot more than that. Remember that the gains labor made after world war II were built upon decades of struggle by labor, including frequently being targets of violence by armed militia hired by corporations [1]. Despite that, America desperately needed labor for world war II (where the alternative was defeat at the hands of the Nazis), so for that moment in history capital and labor found themselves in a obvious win-win scenario. Most of the gains made by labor in America were made during this period.
The minimum wage does not naturally rise - it is a policy decision, one implemented under pressure from labor. And as labor's political power has waned and capital's political power has increased, minimum wage has stagnated.
Under our current system that heavily favors returning productivity gains to capital instead of labor, returning America to that global monopoly (which would require the highly improbable destruction the industrial capacity of the rest of the world while leaving America's untouched) would just turn the hypothetical gains of that monopoly over to the owners of capital.
Realistically, any attempt to return to the prior American monopoly would result in a massive regression in the American standard of living, through the destruction of purchasing power abroad for American goods and services (remember, we have a lot more people today than we did back then, and many of them - especially farmers - work in occupations that sell to other countries).
1. https://en.wikipedia.org/wiki/Anti-union_violence_in_the_Uni...
The minimum amount of money you have to pay for someone to show up for any job rises (and falls) alongside demand for labor in the broader economy.
> Under our current system that heavily favors returning productivity gains to capital instead of labor...
If you look at the profit margins of those companies that employ a lot of low-end labor, you will find that they're generally in the single digit percentages. I think that's a pretty fair deal for organizing all that labor and taking on the capital risk. Profits aren't guaranteed, after all. There just isn't that much money to redistribute here, you would have to raise prices, which can make you uncompetitive.
Oh, what that it were so simple. There are far more factors governing "market wages", which you are describing, including labor supply at a given skill level, automation, political representation of laborers vs employers, and how that representation manifests as power in the local and global economic contexts.
The "minimum wage" specifically is a policy designed to put a floor under the standard of living of people whose market wages in the economy would provide a standard of living below what the society considers humane. Some societies have no such humanity based floor.
Maybe that's the intention, but what a minimum wage actually does is remove the possibility for anyone to work below an arbitrary number of dollars.
If that value is lower than the going market rate for low-skilled labor, minimum wage makes no difference.
Above that, it removes more and more people from the "eligible to work" pool. There's nothing humane about preventing people from being able to work, especially when you don't have a welfare system to pick up those who are now doomed to unemployment.
It should be paired with a federal jobs guarantee and universal healthcare then.
It shouldn't be normalized to be a "lifelong" thing, in the same way we think it's unusual for someone to be a lifelong college student. At least one without milestones such as degrees, etc.
My reading of the argument (maybe different from OP) is the choice to work a low wage job isn't a choice made completely by one's own volition due to a huge stack of societal factors.
Let's break your counterargument down a bit, preventing people from being able to work denies them sustenance yes, but also embedded (IMO) in your argument is the intrinsic value of a job as a part of someone's life. Here we agree and this is why I don't support cradle-to-grave welfare and think it would be a disaster if implemented. It is something welfare advocates tend to ignore, to the detriment of their credibility on other economic matters.
A retraining program coupled with a large hike in minimum wages and temporary retraining assistance could sustainably raise the minimum standard of living with no government takeover of the economy. The program itself can be a private one if designed the right way. Prior retraining programs didn't work due to 1) lack of accountability and 2) lack of demand for upskilled labor. A very high minimum wage fixes that on the cost side and also on the aggregate demand side. (Something approaching the median US wage today or possibly 1.5x-2x higher, phased in over several decades to give business a measure of predictability and planning capacity.)
Most low paying jobs can be automated, when they aren't it is because human labor is so cheap that the expense of capex to automate isn't worth it. By raising the floor cost of labor, government provides business an incentive to retool the economy around higher-wage paying activities. Any business that can't automate and relies on cheap human work to do drudgery isn't worth saving in my opinion. A bonus is that the resulting capex will generate second and third order effects that will catalyze economic growth and spare many otherwise impacted small businesses from failing.
We want to idealize the person who starts out in a fast food restaurant, learns discipline and organizational skills, and moves on to higher paying work. Several decades of data have shown us this is a nice theory that fails in practice in most cases. Those people remain stuck and that is bad for economic growth in addition to causing needless suffering. Keeping the minimum wage low hasn't solved this problem and won't solve it in the future.
The last forty years has been redistributing profits from labour to capital.
There is nothing at all wrong with reversing that.
Society needs to find a way to have people gainfully employed keeping the minimum wage at poverty levels is not a good choice.
There were a few potential inflection points / events that happened around then.
1971 saw the perhaps ill-considered abandonment of Bretton Woods - arguably this ineluctably led to an ongoing boom / bust cycle.
(Can recommend John Ralston Saul's discussion around this in his book 'The Collapse of Globalism'.)
What are these other companies doing that we are not? What can we do to make ourselves more competitive such that each employee has enough productive capacity to easily receive $24/hr or equivalent? The peak of 1973 is gone and not coming back, we have to look to the future now.
How do we maintain it? An obvious factor is our military capacity. That means defense spending. Under a capitalist system that also requires a competitive commercial defense sector and also a strong economy capable of sustaining such a sector via tax revenue.
Most tax revenue comes from individuals. In an era of mobile capital, corporate taxation is sub-optimal. So the economy's health is linked to the prosperity of individuals, in aggregate. Prosperity can come from competition, but the most durable forms of prosperity are tied to increasing productivity.
Continuing on this first principles trajectory should lead to a stable structure. It's not one that is dominated by "print-and-export-dollars"-style industries.
And/or the fruits of globalism have not been fairly shared. Depending on whom you ask.
The surprising thing about the current era is just how little wealth is inherited and how much has been largely generated during the owner's lifetime, in many cases due to labor and receiving compensation in the form of stock. The vast inheritances we read about from the 19th century aren't there this time, barring a few exceptions. Thomas Piketty wrote about this in Capital.
What do you think about that? Did they make any errors?
Edit: Also, from the link, this is very fishy to me. You could argue the medical benefits they exclude aren't meaningful because of healthcare inflation not being linked to better health outcomes. You can't make that argument for capital gains. It's likely not be meaningful because there are indeed severe inequalities among Americans in capital assets holdings, it is still an omission however.
> And it takes into account capital gains but, due to certain technical constraints, only for those above the 90th percentile.
I have an issue with this. By some definition, of course. But there is still something very different about the kind of labor which goes on there. Class, opportunity, connections, access to capital, and access to political influence further entrenching their position. It's almost like the nobility of yore.
I find pointing to the 1% labor as some kind of redeeming quality of the system, is instead a distraction from capital vs labor. For the regular labor to have a chance to enter the top 1% of labor, is just as much of a pipe dream as them falling into Big Capital.
I think that’s kind of what the OP you responded to was getting at. I know professors at large state universities making $100,000+ in medium to low cost of living locations. Some make even more. They aren’t 1% but they might be top 10%.
I guess what’s piqued my interest here is, at what point do we consider labor to be labor?
If you get a nice UAW job for 30 years and plow money into the market, are you not a capitalist?
Is a surgeon not labor since he or she may not own the hospital? Sure they may make $700,000/year, but... aren’t they working for a living?
The Meritocracy Trap is a great book I’d recommend that’s related to this question/issue. Wealth and the bourgeoisie used to just hang out all day and go for walks in the park. Now they work 120 hours/week.
https://www.theatlantic.com/business/archive/2016/09/the-fre...
A salient quote:
'Elite men in the U.S. are the world’s chief workaholics. They work longer hours than poorer men in the U.S. and rich men in other advanced countries. In the last generation, they have reduced their leisure time by more than any other demographic. As the economist Robert Frank wrote, “building wealth to them is a creative process, and the closest thing they have to fun.”'
We need to fix our relationship with work, especially for the sake of those currently unable to do "fun" jobs that pay well. I don't think working less or a redistribution scheme via the government is an honest solution.
Instead, a much higher minimum wage coupled with retraining and temporary economic assistance that can spur a mass automation of "drudgery"-type jobs is a better answer. This in turn would allow society to redesign work so that it is more humane and more valuable. I also don't buy the belief that only some are capable of creative work.
[1] https://www.theatlantic.com/business/archive/2016/09/the-fre...
I have two theories on this. One is that we simply have improved our management processes. The economy became more developed and you could realize real efficiency gains from outsourcing. From a pure GDP perspective - this was good.
The second is more messy and i'm still working on it but it ties into a lot of macro issues. It used to be much easier start out with no experience, say as a janitor, and work your way up to a higher position in the same company. This was possible because it was all the same company. Now with outsourcing this is impossible, if you start as a janitor, the only thing you can do is maybe run the janitor company, but you won't ever become the CEO of the company whose office you clean. At the same time, you've made entry-level positions at the company harder to attain. The floor is no longer janitor, it is now junior developer (to take a software example). This is one of the reasons why I think there is such a bifurcation in our labor market. A college degree is now the minimum requirement to get your foot into the door. Again, it used to possible to start at the very bottom and work your way up but now there is a hard cap on growth unless you go the college route.
I think this was a clever way for companies to also push costs onto employees. Training used to be a thing companies did but now it's basically been abandoned. Go spend your own money and get a degree before even talking to us is the attitude.
An interesting outcome is that is becomes more difficult to rise to high levels unless that is what you’re optimizing for early. Ironically, this creates the same pressure that makes high levels so competitive and potentially miserable
I remember when I wanted to sell in France, I had to find a French distributor, make a French version of the product, guess how many would sell there, ship a pile to the distributor, the distributor collects most of the money, and unsold merchandise is scrapped. If I didn't have a distributor, the merchandise was always getting hung up in customs, would disappear in the mail, would take 6 weeks to deliver, I'd get paid in dollary-doos that no bank would exchange, etc.
Rinse, repeat for every country.
Today, I ship all over the world via the internet for $0, have no stock, no scrap, no middlemen, get paid instantly, ship instantly, and the transaction cost is 1% for paypal and 3% for credit cards.
Still have to pay taxes, though :-)
This all true, and empowering for those who have the relevant know-how and opportunities. However, these apparent efficiencies are built on the back of the factors that GP points out. Empowerment for some relies on structures that disempower others. Agency staff live precariously; the companies that use them have ever tighter margins, they are increasingly hollow shells that serve only to generate cash not to provide the security of employment.
The convenience we appear to benefit from is an ever-thinner veneer that disguises deeper problems.
I've seen many guides to doing this in the form of blogs. This is not hard information to come by.
There's also an implication that it's simply okay to let job security rot away, that people in precarious work should simply read a few blogs and retrain. I'm not convinced that it's a good plan to ignore creepingly pervasive employment insecurity.
> Yet the biggest difference between their two experiences is in the opportunities they created. A manager learned that Evans was taking computer classes while she was working as a janitor and asked her to teach some other employees how to use spreadsheet software to track inventory. When she eventually finished her college degree in 1987, she was promoted to a professional-track job in information technology.
> Less than a decade later, Evans was chief technology officer of the whole company, and she has had a long career since as a senior executive at other top companies. Ramos sees the only advancement possibility as becoming a team leader keeping tabs on a few other janitors, which pays an extra 50 cents an hour.
The spreadsheet story is nice, but even having these skills back in the 80's was way less common than today. The article should also have looked at how much tuition was relative to the cost of living/salary Evans was making, and if Ramos could afford it today.
> Evans was a full-time employee of Kodak. She received more than four weeks of paid vacation per year, reimbursement of some tuition costs to go to college part time, and a bonus payment every March. When the facility she cleaned was shut down, the company found another job for her: cutting film.
She was able to bootstrap her career at least in part because Kodak offered tuition reimbursement and other benefits.
I did.
What I would be curious to read is an accountant taking a look at Ramos finances and figuring out how she could afford (or not) to get the same degree.
The structural shift to contractors is part of a broad trend after 1970 suggesting American labour isn't, economically speaking, a growth engine.
That should be made illegal to do...
Do you really belive there is a collective of business owners who thought "yeah, let's outsource everything, because f..k employees"?
Obviously it's about specialization. Why a software house should hire a cleaning lady? They are not in the business of cleaning, they know nothing about it and they don't want to even think about how you go about hiring someone for cleaning.
Or the other way around. Should a cleaning company hire software developers? They would fail so hard at it. Not to mention the frustration.
World got more complex, business got too.
I honestly think that having people in house to do these kind of jobs can be a benefit. A good receptionist for example can be a real asset. But they are hard to find.
See https://www.reddit.com/r/badeconomics/comments/6rtoh4/produc... for details. I'm almost positive the same is going on here.
Now everybody is rich enough that we can afford to debate the relativism of the capitalist social contract...but that’s only thanks to the advancements brought about in the first place.
What about the people who build and service the technology which allows these improvements to be implemented?
The people who build and service the technology are paid well. They’re techies who live in Silicon Valley, etc. But there are just very few of them compared to the 950 newly obsolete workers.
Since rent has been pushed up by political means why not wages?
Also, why are we assuming that technology brought down wages when offshoring has skyrocketed. What makes you think it wasn't competition from the third world labor rather than robots? There is a political position embedded in the assumption that robots are responsible for the missing jobs.
Have you noticed how little the media focuses on the actual platforms of most politicians and focuses on the spectacle and drama of politics instead? That distraction serve a purpose (for the owners of said media).
Also, a platform of higher rents and lower wages will usually be called "lower taxes" and "freedom from onerous regulations". If you want to see more of this type of propaganda, look at https://www.aei.org/ for instance.
This type of thing falls apart when analyzed too closely, which is partly why the media will use it to drive soundbites but won't dive in too deep.
Politicians get elected on a platform of higher rents and lower wages because the donations they rely upon come from people who want it and the media coverage they rely upon come from people who want it.
Lowering taxes doesn't lower wages.
Higher rents are caused by regulations, not freedom from regulations. You have to ask permission for something as simple as building places to live.
Prop 13 wasn't run on a platform of raising rents, was it?
And, Boston, NY, etc. rents are NOT as high as San Fran.
But while Prop 13 also affects politics around new construction, it's a far reach to use its long term effects on voter behavior to associate general concepts of lower taxes and less regulation with higher rents or lower wages.
Notably, it's a law that taxes people unequally.
i would be mildly surprised if "liberal" CNBC had even one person from common dreams on.
i'm not gonna dig through the new york times for examples where they cited somebody from AEI coz it's paywalled but it wouldn't surprise me if they, like CNBC do, routinely.
Do we think that increasing minimum wage will hasten or slow down this trend?
I don't think it makes sense to treat an explicit political choice as a fait accompli.
"The War showed conclusively that by the scientific organization of production it is possible to keep modern populations in fair comfort on a small part of the working capacity of the modern world. If at the end of the War the scientific organization which had been created in order to liberate men for fighting and munition work had been preserved, and the hours of work had been cut down to four, all would have been well. Instead of that, the old chaos was restored, those whose work was demanded were made to work long hours, and the rest were left to starve as unemployed. Why? Because work is a duty, and a man should not receive wages in proportion to what he has produced, but in proportion to his virtue as exemplified by his industry.
This is the morality of the Slave State, applied in circumstances totally unlike those in which it arose. No wonder the result has been disastrous. Let us take an illustration. Suppose that at a given moment a certain number of people are engaged in the manufacture of pins. They make as many pins as the world needs, working (say) eight hours a day. Someone makes an invention by which the same number of men can make twice as many pins as before. But the world does not need twice as many pins: pins are already so cheap that hardly any more will be bought at a lower price. In a sensible world everybody concerned in the manufacture of pins would take to working four hours instead of eight, and everything else would go on as before. But in the actual world this would be thought demoralizing. The men still work eight hours, there are too many pins, some employers go bankrupt, and half the men previously concerned in making pins are thrown out of work. There is, in the end, just as much leisure as on the other plan, but half the men are totally idle while half are still overworked. In this way it is insured that the unavoidable leisure shall cause misery all round instead of being a universal source of happiness. Can anything more insane be imagined?"
https://harpers.org/archive/1932/10/in-praise-of-idleness/
What happens is that those 4 can go do something else; now in reality that something else is often not as good as what they were doing before or else they would have already been doing it.
But people are not static and can improve, develop skills, and learn new things. Also prices normally go down, which encourages innovation, and can create whole new classes of jobs.
For instance before medical imaging we didn't have x-ray technicians, etc - But I'm glad that new field was created.
So for the sake of fairness, no one should get to work less hours?
It's pretty clear that Russell's sentiment is that this should be expanded to society as a whole.
Certain areas are clearly broken - education, medicine, and housing -- but that's largely due to government interference.
That has not been proven. If anything the opposite. I'm sure that a significant portion of the population would choose less time at work over non-essential consumption given the choice. There's a reason that full-time working hours are always changed universally - having the leverage and the economic base to individually request part-time is a privilege. Furthermore there's usually a disproportional economic punishment when one's working hours doesn't reach some "full-time" threshold, not to mention the likely social punishment like having a harder time to get promoted and similar.
People like to assume that people choose non-essential goods over leisure but for some reason they are never very keen on trying to prove it by giving workers the choice without undue punishment.
A good experiment could be to allow people to choose to whether they'd like to get their raise (or if lucky, convert the yearly bonus) in time or money, or perhaps some split.
> but that's largely due to government interference.
Only in the US it seems.
In a recent HN discussion, someone suggested that step one of emulating successful tech companies (Netflix was used as an example) was to fire half your workforce and pay the remaining half double. That logic meshes with my experiences; the machines made you more efficient, but you needed more intelligence to use them than the tools they replaced.
idk about the owners specifically, but I think it's fair that the lion's share of the gains go to the people who made it happen. in this example at least, the widget maker didn't do anything to increase their productivity.
This method of organizing labor and value which disallows workers' to gain anything from increases in their own output keeps them from ever being able to participate in it, leading to alienation from their jobs and living in a perpetual cycle of poverty.
They also capture these gains because the increased productivity of the company results in more products of greater value on the market. In short, they benefit as consumers.
But the surplus value should definitely not go 100% to the workers and 0% to the owners. Otherwise, there is no reward for creating the surplus value, and productivity gains will not happen, which in general is no way to run a society. Plus productivity helps reduce scarcity, and scarcity disproportionately affects poorer people.
No, and neither is that the case. The increased profit is the wage the technology earns for the investor who wisely chose to make a successful investment. Other investors made different, less wise automation decisions and in so doing, earned less (or negative) profit.
The remainder of the surplus value is captured by the consumer who now has available to him or her a greater variety of higher quality products at lower prices. They capture this value when they go to market and get more better and newer things.
> What about the people who build and service the technology which allows these improvements to be implemented?
They are typically more skilled workers who get paid more because they are performing a higher skilled job. The old way of doing things was less productive and required less skill from the workers. The new way is more productive and requires greater investments in capital and skilled labor.
Thus, technology isn’t the cause of companies capturing a higher percentage of the increased efficiency due to automation.
1971, 1968, doesn't really matter. But - many such "negative" effects only really show up after 1981, that is after the peak of the interest rates. RIP Volcker, the last Fed president with vision.
If you're into slightly crazy sounding theories about the cyclical nature of human progress I recommend: https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generatio.... Ray Dalio is also writing a lot on his own version of the "around 80 years cycle" theory.
https://en.wikipedia.org/wiki/Intermodal_container#History
Also, commondreams.org is a known socialist website. Their claims on economic productivity should be taken with an enormous grain of salt.
From Baker's article.
(Unlike Common Dreams, this article shows their work and discloses their exact methodology and data sources.)
There’s a couple of big picture issues to consider:
1) Why focus on just wages, rather than just benefits? If productivity doubles, but the cost of providing healthcare triples, should employers cover the increased healthcare costs and also double wages? It’s not Microsoft’s fault that it costs $5,000 to get an MRI. From the perspective of how much is transferred from the employer to the employee, a dollar spent on wages isn’t any different than a dollar spent on healthcare.
Failing to distinguish the two things obscured the real problems. It makes you think something is a structural economic problem when in reality it’s cost disease in a particular industry. Wages aren’t keeping up with the cost of housing in New York and San Francisco. But nationwide, the median mortgage payment as a percentage of the median income has scarcely changed since the 1970s. Are wages the problem or are local laws around housing the problem?
2) There is kind of a metaphysical question about who should get the benefits of investment in technology. If you replace 100 workers with technology + very expensive capital equipment, productivity will increase by a factor of 10. (That’s how labor productivity is measured.) Does that mean wages should go up by a factor of 10?
There's no doubt some fuzzy math involved to extrapolate inflation over the course of 50+ years, but I don't think that invalidates the fact that minimum wage has objectively not kept up with inflation even remotely.
The federal minimum wage has been stuck at $7.25 since 2009, and a handful of states are only just now breaching $15/hr. At this rate by the time a federal increase happens we'll already be another 20 years behind.
Worse yet is that labor data shows that more and more adults are working in minimum wage jobs, so the talking point of "it's just summer jobs for teenagers" and "it's entry level work to move on from" is very out of touch with reality these days. There are millions of people trying to survive on these wage levels and without benefits and it is not working.
But even more localities have higher minimum wages. Because the "minimum necessary" is extremely cost-of-living specific, it's decentralized.
Despite Washington having a State minimum wage of $13.50, Seattle's minimum wage is $16.39/hr.
Despite New York having a State minimum wage of $11.80, New York City's minimum wage is $15/hr
Despite Illinois having a State minimum wage of $11, Chicago's minimum wage is $14/hr.
Despite California having a State minimum wage of $13, San Francisco and Berkeley's minimum wages are $16.07/hr. Emeryville's minimum wage is $16.84/hr. San Jose, Santa Clara, Cupertino, Sunnyvale, Fremont, Belmont, Alameda, El Cerrito, Los Altos, Milpitas, Redwood City, Palo Alto, Richmond, Malibu, Los Angeles, Santa Monica, and Santa Rosa all have minimum wages at or higher than $15/hr.
You can view it by state and by city here -> https://www.epi.org/minimum-wage-tracker/
Then is it really true that productivity has increased? Millionaires and billionaires are not eating the food of millions of people or occupying hundreds of thousands of apartments and vehicles.
I think you might be forgetting that most benefits at that wage level come from the government not the employer.
When you count how those benefits have increased since 1968 then minimum wage has never been higher.
This is most particularly true for Medicaid Expandion states since the ACA, but even non-expansion states with the health care tax credits and cost sharing reductions which are worth $10k-$20k per year to a low-income family of four.
This adds about $4/hour to the effective wage of a dual-income family which TFA is just ignoring.
The increasing value and accessibility of SNAP benefits is probably another $1/hour.
An oversimplified example [with lots of nuances I'm sure people will comment on instead of the original point]: The supply of heart surgeons is small, therefore they can command a larger wage and have their choice of jobs. The supply of burger-flippers is much larger and employers can usually find someone willing to do the labor for cheaper than another person.
The point being, the best way to increase your wage is to switch jobs to something where the supply of applicants is smaller and the demand is strong.
This is why employer lobbies are very keen on reducing public benefits (means you are more reliant on having a job) and reducing public sector wages (reduces competition in the labor market).
But in the longer term, I think you raise a great point---it's a huge incentive for the CEO to figure out how to automate making 200 million whatever so that they can pay $0. Which is good for the economy in general (automation means more free human time), but societies have to adapt to a lack of labor-intensive jobs to go around.
They already need to be adapting to that, because we're already in the middle of the automation revolution.
Personally I don't think it would cause any significant unemployment as long as you don't do it all at once. Based on my own research, the evidence doesn't support minimum wage hikes increasing unemployment, except possibly in the very short term. The logic is basically that because the marginal propensity to consume is so high for low income workers any increase in the minimum wage creates large spikes in demand. No one wants to fire their workforce in the face of increasing demand. Prices go up some then stabilize. Companies bring in more absolute $s, and employ a similar (or even possibly a larger) workforce. It ends up being a redistribution without meaningful negative consequences. The obvious question becomes "why not keep raising it even more then?" and then answer is basically that at some point the MPC drops too low and you stop getting the positive effects, at which point you'd presumably start driving unemployment.
That's obviously an oversimplification, but so is the simple logic that large changes in minimum wage spike unemployment.
Those are going to be some terrible hamburgers by the time they're shipped back from Bangladesh to Kansas, and the wait time is going to really change the drive-thru experience. ;)
They fix the number of Doctors, and, the government usually provides substantial support for education and training.
So not a very good example!
But it's moot - on the 'low end' of wages, basically 40% of the population, people have 0 bargaining power - it's always been like that.
The 'free market' minimum wage would be ~2$ an hour. People would be living in favelas without electricity (or it would be stolen), no healthcare, no car, borderline subsistence living. An entire economy would pop up around that - instead of the 'Dollar store' you'd have the '25 cent' store.
Which is why every advanced nation has minimum wage laws.
The question is though - how much of the 'productivity gains' are from better labour in any ways?
Say for example a company hums along, and in an era of globalization is able to sell 5x more product, yielding really great surpluses. So the investors and execs start to get rich, the staffers get paid the same relatively speaking to inflation, their boat is possibly not lifted but stays the same. They are doing the same work, with the same skills etc..
That's more likely what is happening - labour used to be a commodity, but it's even more of a commodity now.
There are no easy solutions but minimum wage should possibly be hire, the jobs that can't be done at that price should go to Mexico to help that economy develop so they can be purchasers of American exports. Something like that.
I'd argue the whole point of productivity gains is that they do outpace pay. The idea is the same work generates more value. Some of that extra value can be passed back to the employee, but if all of it is passed back to the employee, then the goods produced don't actually get cheaper. If nothing gets cheaper, there's no incentive for a business to invest in tech that makes employees more productive.
The data in the piece has a lot of problems with it too, but I think the core assumption is fundamentally off-base.
That's because those people are sadly wrong. Salaries have never been based on value created. They have always been based on the minimum a company could pay for the talent they desire.
My point is just that I don't think "wages should keep pace with productivity" is true. If wages always rose with productivity, we'd be focusing all the gains on the people in the sectors where productivity is growing, and not lowering the cost of goods for everybody else.
Often that incentive is making goods cheaper, so they're more competitive. That's a huge generalization, but it makes the point that there's nothing wrong with productivity gains outpacing wages.
There's a spectrum between none and all.
Also, why wouldn't goods get cheaper? Scaling up production is easy so it's not a supply issue. There would be two outcomes: people would buy more goods overall (as has happened over time) or they would work less and enjoy more leisure time.
There's a reason why common good capitalism is an increasingly attractive model for a lot of folks. A society cannot maintain the maximize returns to capital model indefinitely. I think many people are realizing that Friedman's economics either cannot be sustained or lead to a place where many would prefer not to go. People, and therefore the invisible hand, are inherently flawed.
Suppose a business with a profit margin of 20% increases its revenue by 10% without increasing labour input. If the owner captures that 10%, the profit margin is now 27%. If the revenue is paid out as higher wages (“pay keeps pace with productivity gains”), the profit margin falls to 18%. If wages increase by 10% (“pay keeps pace with productivity growth”), the profit margin remains constant and profit can also increase by 10%.
What happens to the profit margin of individual businesses will vary. But across the entire economy, it’s reasonable to expect that the wage share will remain pretty constant, and until the 1980s, it did. https://en.wikipedia.org/wiki/Wage_share
When people say that "wages kept pace with productivity growth" that's what they're saying - that a 10% increase in productivity resulted ina 10% increase in pay, not a $10 increase in productivity resulted ina $10 increase in pay.
There have been a myriad of studies which try to link minimum wage to worker productivity and the default assumption is always that the worker should bear the fruit of all productivity gains. Why is this the case? Often, it is not the worker who was responsible for the capital investments that increased his/her productivity.
A couple crude examples to illustrate my opposition to this notion: - My employer pays me to create web applications. We agreed on a rate (could be 10 money units per hour OR 100 money units per application). My performance is assessed throughout my employment to see if my productivity is satisfactory for my rate. Maybe my employer refuses to invest in any tooling for me and I have to use vim to write all my code. If they then invest in an IntelliJ license for me (thanks employer!) and I am more productive, should I be paid more? Debatably, my job didn't get easier/harder. Now if I invest in the tooling myself, and am paid per application, I should get paid more; this often isn't the case.
- In 1956 if my laundromat employer paid me to wash clothes, I was probably doing it by hand and maybe getting 3-5 pounds of clothes done per hour. My wage (likely minimum) would be $1/hr. In 2020, we have laundry machines that can do 20 pounds of clothes every 30 minutes. $1/hr (of 1956 money) would be roughly $10/hr in 2020. No one would suggest that we pay someone upwards of $100/hr to run a laundry machine (unless the worker was paid per pound of laundry done and personally made the investment in the machine). It likely wouldn't even be a job if the minimum wage was $24/hr today.
It seems like these analysis of what the minimum wage should be should take into account that technology and capital investments have made a lot of jobs either lower skilled or less valuable. I'm not sure how to quantify the lack of job creation in sectors that would warrant $24/hr. Another option would be to pay workers directly for their output but this would have other consequences. Starbucks invests in making baristas efficient so they can handle the morning rush but pays them just the same for the afternoon lull.
Caveat that I am pretty ignorant to this so I may be wrong but I do not believe a low floor is what is driving wages down.
Wage aligns with replaceability - how easy is it to replace you? Professional athletes are hard to replace, doctors less so, cashiers even less.
Wages are driving down because, unless you get lucky, there’s not much to do. Big companies chop up specialized roles into a hundred “dumb” ones so people can be easily replaced.
But isn't this logic applied to average CEO pay, which has gone up many times faster than productivity? CEOs work isn't any more demanding than it used to be, either.
When they get removed, they often receive golden parachutes even if they seriously effed up the company.
This can't be explained by return on equity. I guess it can be explained by bargaining power or cronyism, or perhaps other things I'm not thinking of.
True often the golden parachutes are way too high compared to realistic performance bonuses. But if you think of that as insurance - the board and the CEO both know this is risky, so they negotiate a fixed golden parachute just in case it doesn't work out - otherwise why would someone who wouldn't get fired take the job, since they wouldn't want to risk the downside?
Microsoft’s market capitalization has more than doubled during Satya Nadella’s tenure as CEO. When Steve Ballmet quit as CEO the market cap jumped over $100 million. That kind of difference is why companies pay extremely well for top CEO talent. Management is a skill, some people are really great at managing large, complex, profitable organizations and they’re worth a lot of money.
So a big reason CEO wages grew is that companies became massive.
I think it has, actually. The CEO's job became more complicated as a result of the increased complexity in the world. There used to be only brick-and-mortar and mail order, now there is internet. They used to advertise on tv, radio, and newspaper. Now they can advertise tv, radio, newspaper, online ads, and social media influencers. They didn't have to worry about ransomware, now they do. And so on.
If we measure a CEO’s job difficulty based on how many years a typical company in their industry can safely operate while stagnating, then the job has become many times more difficult in the last 40 years in some industries. In others, perhaps only twice as difficult.
That is not to say that salaries should stay high, but we would look for reduction to come from systemic productivity gains in management that have come to other white collar professions: software, more efficient management hierarchies, cultural changes in communication, etc.
I’m certain that they delegate those issues to subordinates; do you feel that there is skill involved in managing and supervising subordinates, and melding their disparate opinions into a coherent and profitable direction for the company?
Wages are set by the market, not by productivity.
Right... but there's absolutely no mechanism to achieve anything apart from through the market (for the private sector.) You can argue all you want, but nothing will happen. Nobody (to an approximation) is going to voluntarily pay more for an abstract concept of fairness.
This article is trying to argue something else entirely. That we as a society are collectively screwing those less fortunate. The productivity has gone up, and the gains from the productivity go to the rich rather than the poor. While this might be true in principle, this article fails to provide the evidence, as the entire premise is flawed.
Real life example, factory worker productivity rose dramatically with automation, and salaries did not keep up. Physician productivity did not increase much but salaries grew.
[0] https://en.m.wikipedia.org/wiki/Baumol%27s_cost_disease