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Wed Jan 16, 2013, 06:40 AM

Our Economic Pickle: why we must make wages increase to match productivity increases.

http://www.nytimes.com/2013/01/13/sunday-review/americas-productivity-climbs-but-wages-stagnate.html?hp&_r=0



From 1973 to 2011, worker productivity grew 80 percent, while median hourly compensation, after inflation, grew by just one-eighth that amount, according to the Economic Policy Institute, a liberal research group. And since 2000, productivity has risen 23 percent while real hourly pay has essentially stagnated.

Meanwhile, itís been a lost economic decade for many households. According to the Center for Budget and Policy Priorities, median income for working-age households (headed by someone under age 65) slid 12.4 percent from 2000 to 2011, to $55,640. During that time the American economy grew more than 18 percent.

Emmanuel Saez, an economist at the University of California at Berkeley, found that the top 1 percent of households garnered 65 percent of all the nationís income growth from 2002 to 2007, when the recession hit. Another study found that one-third of the overall increase in income going to the richest 1 percent has resulted from the surge in corporate profits.

MANY economists say the stubbornly high jobless rate and the declining power of labor unions are also important factors behind the declining wage share, reducing the leverage of workers to demand higher wages. Unions represent just 7 percent of workers in corporate America, one-quarter the level in the 1960

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Reply Our Economic Pickle: why we must make wages increase to match productivity increases. (Original post)
eridani Jan 2013 OP
Sherman A1 Jan 2013 #1
econoclast Jan 2013 #2
eridani Jan 2013 #3
Recursion Jan 2013 #4
eridani Jan 2013 #19
Theyletmeeatcake2 Jan 2013 #5
jeff47 Jan 2013 #6
econoclast Jan 2013 #12
jeff47 Jan 2013 #16
econoclast Jan 2013 #17
jeff47 Jan 2013 #18
sulphurdunn Jan 2013 #7
econoclast Jan 2013 #14
bigapple1963 Jan 2013 #8
1-Old-Man Jan 2013 #9
Fumesucker Jan 2013 #11
econoclast Jan 2013 #13
Fumesucker Jan 2013 #15
Tsiyu Jan 2013 #10

Response to eridani (Original post)

Wed Jan 16, 2013, 06:42 AM

1. Precisely

If wages had kept up with productivity increases we would all be better off as those wages would have translated into increased spending and security for the lower and middle classes. The upper class would have benefited as well as a rising tide lifts all boats.

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Response to eridani (Original post)

Wed Jan 16, 2013, 07:07 AM

2. But WHY did productivity go up?

What if the gains in productivity came from technological improvements? If so, then the rewards for the gains should go to the developers of the technology.

Example - consider the nail gun. Vast improvement over the hammer. Made carpentry physically easier and faster. Carpenters can build more and faster. But. While carpenters have to learn new skills to use the new tool, and should be compensated for that ... Most of the gains in productivity should go to the developer of the nail gun.

And I would argue that most of the productivity gains since 1973 came from technological improvements. Primarily computers.

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 07:19 AM

3. Brilliant. Let's have fewer and fewer people making more and more stuff

Then tell the superfluous workers that they can't have any stuff--it all goes to the patent holders for the technology.

Do you want to keep playing the "enconomy" game or not? If you do, then current holders of wealth must be stripped of what they own and the money redistributed, just like what happens to the winner of Monopoly if the players want to keep playing.

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 07:30 AM

4. Why?

This isn't about who "deserves" the money, it's about what makes a sustainable economy.

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Response to Recursion (Reply #4)

Thu Jan 17, 2013, 01:20 AM

19. Indeed. If all the money is concentrated at the top--

--no one else has anything to spend, which brings the economy to a screeching halt.

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 07:43 AM

5. So you're saying that innovators should

Be rewarded for their ideas......how big should Apple and Microsoft be.....sounds a bit socialist to me ........entitlements even...

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 08:47 AM

6. Wages are supposed to be tied to the value of what that worker produces

So when the worker can produce more stuff in the same amount of time, they should get paid more.

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Response to jeff47 (Reply #6)

Wed Jan 16, 2013, 12:37 PM

12. Actually not

The price of labor is subject to the same forces of supply and demand as every other thing in a market economy.

Insofar as technology decreases demand for skilled labor and increases the supply of people who can do a job .... That tends to decrease the price of labor.

Example : i cant pound a nail straight. I cant saw a straight line with a circular saw. So i'd make a poor carpenter a while ago. But i can do these things well with a nail gun and radial arm saw. My wife could not swing a framing hammer all day .... But did a full day with the nail gun while building our deck. The fact that we could rent the technology meant we didn't have to hire a carpenter. Ie. decreased demand for carpenter labor

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Response to econoclast (Reply #12)

Wed Jan 16, 2013, 02:58 PM

16. And the reduction in labor means you can pay the remaining workers more

because they are getting more done in the same amount of time. So theoretically you can afford to pay more and thus attract the best workers, while the non-straight-nail-pounders go find something else to do.

This is how it worked until 1980 - productivity and wages went up together. So even though fewer workers were working on an individual job, the sector as a whole got more done. Either by having more total work, or by increasing efficiency.

That broke down starting around 1980. Wages have been flat since, while productivity gains are being paid out to executives and investors. They are not being paid to inventors.

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Response to jeff47 (Reply #16)

Wed Jan 16, 2013, 06:09 PM

17. Coupl'a points...

(1). The decoupling of WAGES really started earlier than 1980. Actually about 1972/73. There us a nice Saez chart out there that shows this clearly. Dovetails nicely with the beginnings of widespread computer use in business.

(2). Theoretically you Can't afford to pay workers more. Those gains from efficiency are going to the technology producers. And why pay more for highly skilled workers if all they have to do is push a button? If i want someone to paint my garage with the Wagner power painter ... Why hire Picasso to do it? Because the technology reduces the need for real skill, workers are becoming de-skilled

Example. Consider a small business. Why hire a skilled accountant when you can buy Quickbooks and hire a lower skilled bookkeeper.

Example 2. Real sign at H&R Block. "Wanted - tax preparer. No experience necessary. " No kidding. But with the automated tax software .... Why not. The "tax preparer" will really be a data entry clerk ... No need for a skilled accountant for most tax returns.

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Response to econoclast (Reply #17)

Wed Jan 16, 2013, 10:10 PM

18. Couple'a responses

(1) It's difficult to say when exactly they became decoupled, because there's a lot of statistical noise. However, the decoupling was obvious by the late 70s/early 80s. Hence "about 1980".

Those gains from efficiency are going to the technology producers

False. The efficiency gains are pretty much always greater than the cost of the more-efficient equipment.

Let's use your nailgun and deck example. Let's say a carpenter gets paid $10/hour - a tad low, but it makes the math easier. 1 day is $80, roughly the cost of a nailgun. Yet your efficiency gain still exists on day 2 and beyond. 1 week would easily pay for a very nice nail gun and air compressor. Yet you don't have to buy it again on week 2 and beyond.

And why pay more for highly skilled workers if all they have to do is push a button?

Because they know where exactly to press that button. Again using your nailgun example, skilled carpenters with nailguns and skillsaws will build that deck much faster than unskilled workers with the same tools with less waste of raw materials.

Why hire a skilled accountant when you can buy Quickbooks and hire a lower skilled bookkeeper.

There's three things to add to this:

1) Because the skilled bookeeper is a subject matter expert, they may save you money in the end - for example, they're far more familiar with tax laws than a computer program.

2) Plus, that small business doesn't need to pay that bookeeper full time - if they're actually skilled, most small businesses don't have enough business for a full-time bookeeper. Thus reducing the cost.

3) Finally, opportunity cost - what is that worker not doing while they're running Quickbooks? Enormous numbers of small businesses fail because the owner tries to do something like use Quickbooks when their time is better spent on another task.

Those 3 mean the cost difference is far smaller than it first appears. That being said, Intuit does not receive the entirety of that savings. Your $200 for the deluxe Quickbooks is a one-time cost that is likely to save more than $200. So again, the "efficiency gain" is not all paid to Intuit.

Real sign at H&R Block. "Wanted - tax preparer. No experience necessary. " No kidding. But with the automated tax software .... Why not. The "tax preparer" will really be a data entry clerk

Actually, no. They send them through a training program.

And then the results are reviewed by more experienced personnel. The long part is getting information from the customer, and then a skilled accountant can review the results in a much shorter time.

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 09:03 AM

7. Wait a minute.

Of what possible value is a nail gun without the carpenter who actually uses it to build a house? Why would most of the productivity gains from building a house go to the inventor of a nail gun? The inventor is only entitled to take a profit from the sale of the nail gun. He certainly isn't entitled to a direct share of the economic value added to society by building a house because he invented the nail gun used to help build it, and he most definitely is not entitled to a share of the value of the carpenter's labor because he uses the nail gun. Obviously, no correlation exists between productivity and the distribution of wealth. Your suggestion that the inventor is "entitled" to most of the productivity gains from it is an opinion, to which you are entitled, but it is not a fact, and it is arguably a detriment to society.

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Response to sulphurdunn (Reply #7)

Wed Jan 16, 2013, 12:43 PM

14. Think it through ...

You said
"The inventor is only entitled to take a profit from the sale of the nail gun. He certainly isn't entitled to a direct share of the economic value added to society by building a house because he invented the nail gun "

Right. Almost He gets the profit on EVERY nail gun ..... And sells tons of them!

Add it up and the profit from nail guns gets close to the value of the increased productivity. The Invisible Hand at work!

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 10:25 AM

8. not just the inventors

 

what about the owners of the capital? If the construction company owns the bulldozer and hires and trains a ditch digger to use it to dig the ditch, in the process using 1 or 2 instead of 10 workers, who should get the productivity gains? The company, the trained worker, or the ones who lost their jobs?

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 10:44 AM

9. Your argument fails in its second sentence

The rewards resulting from gains in productivity do not accrue to the developers of the technology, they accrue to the management and owners of the company to the exclusion of rewarding the workers of the company who are, in the end, the people who have to master and apply all 'technology' that is employed from the most basic to the most advanced.

The solution to this problem is straight forward and as simple as pie, its called employee ownership. When the workers (both on the plant floor and in the offices of management) own the company and every employee has a voice in the distribution of net returns - be they distributed to the owners or reinvested in the concern, or invested elsewhere, or a combination of all the above and more too - then and only then will you see equitable distribution of workplace income.

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Response to econoclast (Reply #2)

Wed Jan 16, 2013, 11:03 AM

11. If you wish to market nail guns in that manner then by all means please proceed

You could design and manufacture nail guns and then lease them on a profit sharing basis to carpenters, as the owner of the nail gun you get a percentage of any profits that accrue from the use of the nail gun.

I wish you luck with your plan.






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Response to Fumesucker (Reply #11)

Wed Jan 16, 2013, 12:39 PM

13. Um ..... Isn't that Rent-a-center

More or less

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Response to econoclast (Reply #13)

Wed Jan 16, 2013, 12:54 PM

15. But the inventor/developer only get paid once, Rent A Center buys the things they rent out

I thought the point was that the inventor/developer should directly benefit from every single use of something they invented?

Good thing this idea wasn't around at the discovery of the wheel.

Or fire for that matter.

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Response to eridani (Original post)

Wed Jan 16, 2013, 10:52 AM

10. FOX NEWS: Unions are of the DEBBILL



"Even though they are the reason you lowly workers have any protections at all, you should HATE unions and help us here at FOX news completely destroy them.

It's for your own good! That's the ticket!

The corporations are your FRIENDS! They create awful low wage jobs for you lowlifes, so shut up and work harder!"


And the sad thing is, lots of low wage workers buy this line and spread it far and wide, and then blame Obama or gays or libbruls or immigrant labor when they can't make ends meet....boggles the mind, but low info FOXsuckers are as much to blame for our economic woes as the corporations they fellate.





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