This is the main story. At a time, perhaps because of fixed exchange rates curbing the flow of speculative capital, perhaps not, productivity (viz., increasing automation) gains meant median wage growth - ordinary people participated in GDP growth.
Now this is no longer true, and we get pieces lamenting the death of blue collar jobs through automation. We'll blame robots, but perhaps we should be looking at the fundamentals of our economy - how we've set the free movement of capital above all else, to our detriment.
> fewer and fewer people are needed to make more and more stuff.
You're arguing against yourself, here. The latter is productivity increase, the former is productivity decrease. Also, productivity growth is not new, it has been going on as long as the economy exists. Machine automation has been occurring since the industrial revolution started, it did not start in 1973.
What started in 1973 was that the high end (basically, the owners of capital) stopped sharing productivity gains - meaning that where previously, workers were able to bargain for a share of the increase, now they cannot, because of various mechanisms of taking. CEO pay did not go up 10X because CEOs were suddenly drinking tiger blood and winning the Fields medal.
My original contention was that one of these was the shift away from the Bretton Woods system, with fixed currency exchange rates based on the dollar; going from here to speculative international currency flows and floating exchange rates is one possible mechanism for making workers less able to bargain for those productivity increases.
> It's not hard to understand what happened, although economists, as a group, seem to be incredibly dense on this point. Computer technology allowed radical increases in productivity.
Not sure it's that cut and dry, nor that the rise of computers could be the cause of such a sharp inflection point. Bretton Woods ended around 1971-73...In fact the real wage of nonsupervisory workers peaked in 1973[1]
During the Bretton Woods era, the quasi-gold-standard that reigned until Nixon floated the dollar, hourly wage rates and productivity in the US were pretty closely correlated. In the years after, which saw a huge realignment in finance, the 70s oil crisis, and a general weakening of labour power, this relationship broke down, with an almost complete severance of the relationship.
The one thing this is correct about is that continuing Bretton Woods past 1971 would lower the gap between economic productivity and wages... because both of them would have collapsed after the US depletes all its gold reserves.
Simple: A lot of the productivity gains of the last decades is thanks to globalization, automation and digitalization - basically, many high-paying manual jobs were eliminated by machines, a lot of lower-paying manual jobs (or environmentally problematic production that would have needed expensive adjustments in the US/EU) was shifted off to China, and digitalization eliminated or vastly improved paper-pusher jobs.
Additionally, the standing of unions went down over time, as a combination of legitimate unions-gone-rogue scandals, anti-union legislation being enacted and union-protection enforcement being reduced.
The result was that the capitalist owner and leadership class enjoyed absurd amounts of net worth gains, and the worker class was left unemployed or with stagnating wages at best. To prove that: CEO payments exploded 940% since 1978, S&P went up 707%, while average worker pay went up only 12% [1] in the same time frame.
To be fair, looks like the graph starts to flat-line in 1972-1973. I think that lines up with Nixon leaving the gold standard in 1971 and going to China in 1972. It's possible that globalization may have ended labor scarcity in the U.S. and thus labor has no leverage to capture productivity gains.
But what about the decades of wages not keeping up with productivity (proxy for GDP Growth)? Could this simply be seen as workers finally getting their due?
The first graph is the most interesting. Productivity has increased substantially while wages have remained relatively stagnant. More of the surplus value of labor has been accumulating to capital.
This means that people who get their income primarily from labor have lost a great deal of power vis a vis those whose income comes disproportionately from ownership of capital.
Questions and some guesses:
1) Why is this? If labor can extract less value, that would suggest that it has less bargaining power. That is, labor is more fungible. This fits in with what we experience as developers: one of the great emphases that (successful) companies place is on making developers replaceable and their labor roughly equivalent, through an increased emphasis on frameworks and general languages. It also makes sense for less professionalized labor. Heavy industry requires skills to operate effectively and runs the risk of shutdowns at centralized production facilities, while services and light industry are much easier workplaces to dominate workers.
2)How do the unemployed and underemployed fit in? This is complicated, as women have entered to workforce to make two-income households, while zero-marginal product men have left it as they cannot be employed profitably.
3) Was the threat of communism an enabling force for the middle and working classes in the "good times" leading up to the 80s when it finally started to crack and fall? Before the ruling class in the United States had to optimize the economy to be as effective as possible against the threat of Communism. This meant sacrificing some of its own well-being to buy off the rest of our consent for the ability to play a major role in geopolitics ( this buy off taking the form of concessions to unions, more forceful labor market interventions, healthcare, investments in public education).
4) Could the increasing inequality somehow be a statistical artifact? Smaller countries tend to be more egalitarian than richer ones. Most individual countries in the EU and states in the USA have a lower Gini coefficient than the EU or USA as a whole. Could a similar mechanism cause a larger and more sophisticated economy to feel pressures to become more unequal?
Its tricky to simply blame it on USA policies, as most Western countries have also become significantly less egalitarian than they were in 1970. Which isn't to say that US policies didn't cause it in the USA; it's just that those policies didn't appear in a vacuum, and you've got to identify the forces that caused it around the world.
> Ultimately, diminishing returns with respect to human labor–what some of us would call falling inflation-adjusted wages of non-elite workers–tends to bring economies down.
The article doesn't show at all that there are diminishing returns from human labor. What we have, instead, is that even if technology is making labor ever more productive, these gains in productivity are going more and more towards companies and investors (mostly thanks to the competition from Chinese laborers) instead of (western) non-elite workers. Just look at the big fat profits of most big companies.
The article is thought provoking, but as it usually happens when trying to find a simple explanation to complex phenomena, it doesn't stand to deeper scrutiny.
Returns on investment always exceed wage growth. And as wealth concentrates, the effect is cumulative even over generations. It happens to be tech. It could just as easily be empire.
There was a moment after the world wars when this was intentionally compensated for and now it isn't. There is no William Beveridge, no Roosevelt brain trust and, Keynesian is apparently a bad word now.
But wealth growth didn't slow down after that period. Wage growth (in the US, at least) stopped, but wealth (and productivity) growth kept right on. It just that the returns of that growth aren't going to labor.
So, maybe look at the policy and other changes that redirected the wealth growth (which has continued) rather than asserting that it was an anomalous period of wealth growth.
While I should look up a chart, I'm not able to at the moment, but I'd point out that computerization should have added a large constant factor to labor productivity starting in the 90s, you'd expect wages to rise proportionally if that's the case (and for the jobs displaced to be replaced with high wage jobs too).
I can point out banking deregulation, airline deregulation, oil extraction deregulation.... it hasn't been a uniform march in a single direction, but there has been significant deregulation in core industries. One might point out that the construction industry is now safer, as in fewer people die per building. It's not really possible to justify any deaths for construction in reasonable circumstances.
The question is has a doubling of wages kept pace with the increase in wealth in those countries? I suspect 2x is far below the wealth that was produced. It would be helpful to discuss a particular example.
No one tricked anyone. Automation, globalization, increased efficiency, and doubling of the labor supply by adding women reduced the price of labor, aka wages and all the gains went to capital owners.
I appreciate your argument that most labour have not increased in value - I guess this metric would be called “labour productivity”. If you have the graph you linked with a longer timeline - it starts just before 1970s - thatd be interesting.
I still see graphs as these https://wtfhappenedin1971home.files.wordpress.com/2020/06/im... as clearly saying labour compensation correlated with advances in technology until 1971, when there was a dramatic shift, and that this is also the time when supply of $ was put in the hands of central bankers rather than any real and external asset.
The interesting fact is that the loss of labor's share of GDP to capital is less than you'd imagine, and a much bigger reason for stagnant real wage growth has to do with inequality regarding compensation. Automation is real and is taking jobs, but it's executives that have been soaking up the financial gains from productivity.
This seems to map pretty well to that famous graph showing the divergence between productivity and wage gains [1]. It also at least correlates with the start of a relative predominance of China and other third-world countries in economic growth, which kept wage growth lower in the West than it could have been - empowered, of course, by the policies of people like Reagan and Thatcher.
I haven't read the paper you link to, but the comment:
"A new working paper by Simcha Barkai, of the University of Chicago, concludes that, although the share of income flowing to workers has declined in recent decades, the share flowing to capital (ie, including robots) has shrunk faster. What has grown is the markup firms can charge over their production costs, ie, their profits. Similarly, an NBER working paper published in January argues that the decline in the labour share is linked to the rise of “superstar firms”. A growing number of markets are “winner takes most”, in which the dominant firm earns hefty profits."
...is about the third one I have seen lately that the current financial system is not good at doing what it is supposed to do: allocate capital investment.
Globally, median wages are increasing at their fastest rate in history [1]. Wage growth for the middle class has stagnated in the US, but not nearly as much as some people (myself included, until recently) believe [2]. The primary cause of this slowdown in wage growth is slowing productivity growth [3], while the major secondary cause is growing income disparity. Growing income disparity can be traced [4] directly to growth in regulatory restrictions that impede the free market, and not automation or technology.
This is the main story. At a time, perhaps because of fixed exchange rates curbing the flow of speculative capital, perhaps not, productivity (viz., increasing automation) gains meant median wage growth - ordinary people participated in GDP growth.
Now this is no longer true, and we get pieces lamenting the death of blue collar jobs through automation. We'll blame robots, but perhaps we should be looking at the fundamentals of our economy - how we've set the free movement of capital above all else, to our detriment.
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