The Mystery of the Vanishing Pay Raise

http://www.nytimes.com/2015/11/01/sunday-review/the-mystery-of-the-vanishing-pay-raise.html

by Futurebot • 11 years ago

73 78 11 years ago

masterleep• 11 years ago

Since the government has tried as vigorously as possible to make it expensive and legally risky to employ people, there is really no mystery here.

EdwardDiego• 11 years ago

You're kidding, I hope, if not, try visiting some non-US jurisdictions and see how they do it. The US has very weak protection for employees - the "At-will" employment practise being a striking example.

vinceguidry9• 11 years ago

OK, so capitalism is fundamentally about choices. Market players compete to bring products / services to the market that both a) people want to choose, and b) is cheap to provide. Because it is not the case that the most desirable service is the most expensive to provide, that allows for competition. Markets "learn" over time, advantages gained by one firm are copied by others requiring constant innovation.

The job market is no different, but the second quality, being cheap to provide, means there is going to be a constant degrading in the monetary compensation offered to workers, while the desired benefits those workers are getting is paradoxically going to increase. You can most clearly see this in companies like Uber where compensation gets slashed every year, but there's no truly mass uprising of drivers taking place.

You can treat this as a failure of union outreach, that Uber drivers should unionize and demand relief. But it's not like they can't organize. They were perfectly capable of organizing a march at Uber headquarters. No, most Uber drivers choose to keep driving, the arguments that they're being exploited seem a little thin when you realize that Uber drivers could be doing just about anything else to make more money if they were really truly being exploited. Workers in America have unparalleled ability, compared to other countries, to try out other industries and occupations.

What I think is happening, is that the information age has brought unmatched and unmeasurable utility to common people, in the form of free services provided by tech companies, to everyone (take a second to let it sink in just how unprecedented this is, historically, for a hugely valuable service, like Google search, to be provided to anybody with a Internet connection) and the job market is simply adjusting to meet the new status quo.

Being poor in America isn't nearly as horrible as it used to be. You don't need to expend unreal amounts of effort to increase your station just to have a more-or-less happy life anymore. Homeless people all can get online somehow. And that access provides them with incalculable value. There's a reason that everywhere you go, you see people buried in their smartphones. They're choosing smartphone interaction over everything else they could be doing right now.

So the labor market is adjusting to fit. People can choose to be poorer, and are doing that rather than expending extraordinary efforts to climb ladders that have, all of a sudden, become so much harder to climb. Because with these services, being poor isn't nearly as onerous.

justinator• 11 years ago

Regarding Uber: are the majority of its drivers part time, or full time? If the majority of drivers are part time, I wouldn't suspect there's as much of a chance of a march on Uber Headquarters, as it may not be their main source of income. There's also the problem of geography: the majority of Uber drivers are not close to it.

I'm a little shakier commenting on your poor people/homeless ideas. Have you experienced being homeless/poor recently? I hate to think your perspective on this is from, ahem: an ivory tower.

vinceguidry9• 11 years ago

I specifically tried to omit the homeless from my analysis. Americans have largely excluded homeless people from being able to participate meaningfully in the economy, for various reasons. I am in Colombia right now, and homeless people here play critical roles in maintaining city infrastructure. I saw a homeless guy once fixing water piping out in the street. It felt like the street was his home, he had a pride obligation to making sure his home was in good repair. I also see them doing things like trash sorting, things nobody else wants to do at reasonable rates.

I think Americans, if they could moderate their sense of social justice, could find win-win solutions with the really hard-up that makes everybody's lives better. But they don't, so industries such as sanitation become hotbeds of corruption instead.

But I grew up lower class, white privilege made my life much more palatable than it otherwise would have been. But I am very familiar with the psychological burdens of the working poor. Life is hard, but they are not stupid people. There's a tendency in America to equate lower-class with unintelligent. Just because you don't have an education doesn't make you stupid.

Hard life makes you hard, eventually poor people become unable to climb the social ladder. I've met people who willingly chose less affluent environs over more affluent ones because the poorer ones were places they knew. They felt richer because of their knowledge than because of their opportunity.

crdoconnor7• 11 years ago

I wouldn't suspect there's as much of a chance of a march on Uber Headquarters

Didn't that already happen?

whatshisface• 11 years ago

To be poor - to really be poor - is to live under the constant stress of unexpected payments and unexpected interruptions in your ability to pay the bills you see comming. To be poor is to have to really think about every small purchase, every half mile driven. Living from paycheck to three days before the next paycheck is not a pain that can be pacified with distraction. (Those people buried in their smartphones aren't reading the Wikipedia page on Haskell...)

Have you ever seen the interest on a payday loan? What situation would someone have to be in to make that a good idea? Surely, if the internet could help people that much, nobody would go for it.

I've seen both - you are confusing poor with idle.

vinceguidry9• 11 years ago

The calculated interest rate on payday loans is misleading. Poor people don't think of it that way. When they borrow $300 for a short-term loan and have to pay $30 for the privilege, they're making a rational decision that the $30 later isn't worth as much as the $300 now. There's a recent article on the payday loan industry that confirmed my hunch that the people using them aren't total imbeciles and know what they're doing.

I use credit as a management tool, it gives me options I wouldn't have otherwise. Payday loans are the same, they're just more expensive. I would still use credit if it were more expensive, up to a point where it would be more advantageous to just change the way I perceive money.

Also payday loans are only available to a certain class of the working poor. People with temp jobs or other kinds of inconsistent income can't avail themselves of this kind of credit. They get a lot of press but are really just a niche in the vast constellation of services, both legal and illegal, legible and illegible, that sustain the poor.

I used to use a payday loan business to cash my paychecks when I couldn't get a bank account. The experience struck me as benignly capitalistic, you don't really want to be in the position of having to use these services, but having access to them is way better than the alternative.

every half mile driven

Poor people here aren't that constrained, mostly because gas is and will probably forever be really cheap. In other countries that aren't oil-states gas is an order of magnitude more expensive. Keeping gas costs down is a priority, but not as big of one as meeting housing costs. Housing is the biggest expense most Americans, not just the poor ones, have to contend with. Transportation in comparison is treated as a cost of doing business.

Living from paycheck to three days before the next paycheck is not a pain that can be pacified with distraction.

What poor people do on their phones constantly is cultivate the relationships that sustain them. It is not a distraction the way we think of playing silly games. They are texting, facebooking, even their game playing is done with their friends / family. Poor people are way more social than the middle / upper class could ever be, because they have to.

skybrian• 11 years ago

Yes, most people have smartphones and they're valuable in a variety of ways. That doesn't mean good jobs are easy to find. I'd want to see some evidence for that.

crdoconnor7• 11 years ago

OK, so capitalism is fundamentally about choices.

Not so much. Capitalism is really about the pre-eminence of capital (it's right there in the name).

Treating the labor market as an undifferentiated commodity to be exploited is one way in which the needs of those who own capital (capitalists/rentiers) are placed above those who are part of that labor market. That's how we get QE, austerity, TTIP, bank bailouts, extra strong patents and a bunch of other gifts from government to billionaires.

This is part of what has caused the rise of the professional managerial classes.

You can treat this as a failure of union outreach, that Uber drivers should unionize and demand relief. But it's not like they can't organize.

Unionizing is a constant uphill battle. Uber drivers' lack of success at it says no more about the merits of unionization than the failure of 95% of entrepreneurs does about entrepreneurship.

No, most Uber drivers choose to keep driving, the arguments that they're being exploited seem a little thin when you realize that Uber drivers could be doing just about anything else to make more money if they were really truly being exploited.

The fact that they choose to do it says more about the other choices they have available than it does about Uber. What can they do? Go $150,000 in debt to get an education and still not be able to get a middle class job? Learn javascript and discover that the tech industry is exactly as cliquey as it says that it isn't? Source $1 million in capital from thin air and start their own business and take those 1 in 20 odds?

The major failure any economic model designed to "prove" that we're living in a fair society demonstrates is an underlying assumption that is completely, utterly and stupidly wrong. This is your presumption.

Being poor in America isn't nearly as horrible as it used to be.

Try living on a minimum wage for three months and then start lecturing us about how easy it is. With dependents.

People can choose to be poorer

You know that your ideas are half witted when they demand that you believe that people choose to be poorer.

vinceguidry9• 11 years ago

You're ignoring the broader point to focus on specifics you don't agree with.

Not so much. Capitalism is really about the pre-eminence of capital (it's right there in the name).

Capital is what distinguishes capitalism from other, similar economic forms. Choice is what undergirds capitalism and all these other types of economy.

Also, capital == choices. Not having choices == not having capital.

That's how we get QE, austerity, TTIP, bank bailouts, extra strong patents and a bunch of other gifts from government to billionaires.

What makes capitalism successful is that it is pursued by people. You seem to believe that abstract legal principles, such that might keep things like QE and austerity from happening, are stronger than people's desires to route around those principles. They're not. Despite this, our system manages to evolve anyway.

Also, if you think corporate socialism in the US is bad, you should check out Russia.

Uber drivers' lack of success at it says no more about the merits of unionization than the failure of 95% of entrepreneurs does about entrepreneurship.

Why are you saying, "lack of success" at unionizing? That implies they actually tried.

The fact that they choose to do it says more about the other choices they have available than it does about Uber. What can they do?

Uber drivers have access to the entire city they serve and are capable of moving around this city at will. They could find a better job.

The major failure any economic model designed to "prove" that we're living in a fair society demonstrates is an underlying assumption that is completely, utterly and stupidly wrong.

You're going to have to rephrase this because I have no idea what you're trying to say.

Try living on a minimum wage for three months and then start lecturing us about how easy it is. With dependents.

Try doing it in the outskirts of a Colombian city with no minimum wage. Have you seen how those people live? Homelessness in America is a cakewalk. Food is everywhere. Government services abound. It's hard compared to being middle class or even working class, but relatively speaking compared to everywhere else in the world that it's possible to be poor in, it's easy.

You know that your ideas are half witted when they demand that you believe that people choose to be poorer.

It sounds like you believe poor people can make no meaningful choices at all. That's a sad, depressing world-view, you're essentially equating poor people with animals.

sgt101• 11 years ago

At the same time a lot of things that used to be regarded as commonly available utility have been removed or privatized/enclosed. For example, community - cf "Bowling for Columbine", green spaces, time to spend with family, affordable housing.

I think that the crisis in mental health services kinda undermines your thesis.

drumdance3• 11 years ago

Uber drivers can afford to own cars. My guess is they are not poor. They're lower middle class.

Homeless people all can get online somehow. And that access provides them with incalculable value.

But not enough value to prevent their homelessness.

tunap• 11 years ago

"the information age has brought unmatched and unmeasurable utility to common people, in the form of free services provided by tech companies, to everyone (take a second to let it sink in just how unprecedented this is for a hugely valuable service, like Google search, to be provided to anybody with a Internet connection)"

Google's value is in driving ads to search, perhaps you refer the Google of old that gave results less weighted in commerce. Utility? Perhaps, it is out there if one can find a signal through all the noise. I do agree, it is indeed unprecedented. At the cost of privacy, however, it is hardly "free":

http://adage.com/article/datadriven-marketing/24-billion-dat...

bsder2• 11 years ago

It's simpler than they make it out to be: there is no demand uptick.

People are already spending at 100%+ of their income so they have no way to increase what they are buying even as the economy improves for some people. So, employers have no reason to hire more or extend hours.

This is why we see the minimum wage increases also stimulating the economy where they occur. They result in demand increases.

yummyfajitas2• 11 years ago

The entire purpose of a demand uptick is to cause inflation and lower real wages. Google Keynesian economics - its a fix for unemployment and output gaps, not low wages.

Given that we are already at the natural rate of unemployment, further demand creation is pointless anyway.

yxhuvud• 11 years ago

Considering what happened with the ratio of people that participate in the labour market, further demand creation could very well pull some of those people in work though.

As for Keynes, it is good to remember that he (later on - Keynes in the 20s hadn't reached these insights yet) didn't believe in a natural rate of unemployment (or well, he believed the equilibrium point was determined by a three dimensional equation rather than the two dimensional one that create a single natural rate).

bsder2• 11 years ago

I would suggest you take your own advice and spend some time on Google.

The purpose of stimulating demand is to break a "coordination failure" where falling demand->hiring cutbacks->cutting consumption->falling demand. That's Keynesian (neo-Keynesian actually).

As for "natural rate of unemployment", there is no particular evidence that we are at one, and, in fact, there is lots of evidence that there is probably not a single "natural rate of unemployment" and mounting evidence against the concept in general.

edoloughlin• 11 years ago

Federal Reserve officials hoped wages would begin rising at today’s 5.1 percent, but economists are increasingly saying the rate might need to fall to 4.9 percent or lower to push wages higher

Whenever I read something like this I have to wonder: do these economists have a server farm running models to backup statements like this or do they just pull it out of their asses?

polskibus• 11 years ago

They pull it out of a simple linear model in Excel .

just an educated guess based on my occasional economics study.

mtw• 11 years ago

I wonder if deep learning could be more accurate for this kind of problem

gaius7• 11 years ago

Well I don't know about the Fed but this is how we do it in England https://en.m.wikipedia.org/wiki/MONIAC_Computer

marcosdumay• 11 years ago

The best part is that economists always use 2 significative algarisms. And then, when reality sets down it's not rare that they are wrong by an order of magnitude or signal. (No, what it rare is them getting the most significative algarism right.)

No, nowadays I'm going for the explanation that those numbers are dishonest at their inception, and are just formated on the way that will decieve the biggest number of people.

pm24601• 11 years ago

Seems like the solution to this problem is to keep raising the minimum wage until Google, Apple, etc. who have BILLIONS locked up away from the economy start spending it.

But companies with vast savings are sucking the growth out of the economy. Same a high tax rate sucks economic power out of the economy.

ThomPete11• 11 years ago

I have one word. Technology.

Think about technology as outsourcing and you realize what the problem is because you are realizing the trend; Technology will compete with higher and higher levels of abstraction and so you either have to be really skilled in an increasingly competitive space or you need to accept taking jobs at wages that are as low as they are because of the increased competition from technology.

And until economist stop treating technology as an externality they wont understand whats going on and we will keep debating this as if its a political problem. In my opinion its not.

http://www.technologyreview.com/sites/default/files/images/d...

collyw• 11 years ago

We have had continous improveents in technology up to the recession.

ThomPete11• 11 years ago

Job creation in the US have gone down decade after decade since WWII.

https://plot.ly/~BethS/8/job-growth-by-decade-in-the-united-...

There comes a point where technology starts to compete not just with our muscle but with our brains. And even though there of course are going to be some jobs you can make a living off. Digitalization and automation is disrupting at an ever increasing speed.

You need to look at the trend not the current scenario to understand this.

msellout• 11 years ago

Not sure why you think economists treat technology as externality. I've seen many macroeconomic models that specifically are attempting to model change in technology.

ThomPete11• 11 years ago

Because they mostly do. Especially the economist that advice countries. And you can see it on the way they basically forecast and use various tools to stimulate the economy.

You would see far more politicians propose a Unconditional Basic Income solution if technology were factored into the models regardless of whether you think UBI works or not.

Problem is that technology is now moving at a pace where it will eat up most attempt to stimulate the economy whether it's Keyness philosophy or Austerity philosophy.

gaius7• 11 years ago

Yes but there's no evidence that links higher technology to greater productivity. All the accountants who were automated out of existence by COBOL programs, simply became COBOL programmers, and the net amount of accounting done per person involved didn't change!

ThomPete11• 11 years ago

Thats the wrong way of looking at it.

The point isn't just whether it leads to higher productivity the point is that it removes the need for certain industries almost completely.

Just think about the amount of areas that digitalization have completely removed. Those are jobs lost that aren't created somewhere else in the same phase as it's destroying them. And most of those jobs are being outsourced.

With regards to your cobol example I would like to see where you get that idea from. There is a huge demand of cobol programmers today because of all the old financial/banking systems which no one really dares touching. So that's an unlikely claim.

ryanackley• 11 years ago

I suspect this might have something to do with the rising cost of health insurance. This is not a criticism of Obamacare. This problem has been building for years.

Most people in the USA don't realize how much of their total compensation is health insurance since you don't typically see this cost as a line item on your paycheck. The last time I checked, an employer sponsored health plan for a family of 3 from Aetna was close to $2000/month

drumdance3• 11 years ago

Several years ago some economists in the Bush administration researched the issue and concluded that pretty much all of the "wage growth" in his two terms came in the form of health coverage.

ThomPete11• 11 years ago

This problem exist outside the US too even in Denmark were health care is free.

The reason why it's not so obvious is that countries like Denmark redistributes wealth much more and have fairly high wages. Denmark doesn't have a minimum wage but instead it's based on negotiations between unions and employers (and sometimes the government if they cant agree). The model is know as Flexicurity[1].

The problem is that that model keeps a lot of people outside the working market because their skills simply aren't worth the salaries they would have to get because of this model. And so in Denmark the problem instead is that companies just move the production out or take in cheap east european labour.

The problem isn't about any specific political prioritization but about something more underlying (my claim is technology).

[1]https://en.wikipedia.org/wiki/Flexicurity

goodJobWalrus• 11 years ago

The problem is that that model keeps a lot of people outside the working market because their skills simply aren't worth the salaries they would have to get because of this model.

I'm not sure what you mean by "a lot of people", but Denmark has one of the highest employment rates among OECD countries, so it's actually doing great at keeping people in employment (comparably).

http://www.stats.govt.nz/browse_for_stats/income-and-work/em...

gaius7• 11 years ago

This problem exist outside the US too even in Denmark were health care is free

Well yes and no. Even in European countries someone is paying for it, no? In the UK there is NI and employer's NI - consider the percentages below: https://www.gov.uk/national-insurance-rates-letters/contribu...

iamthepieman2• 11 years ago

This is why I always negotiate health care. If you can reduce the percentage of the premium that you pay(or eliminate it entirely) then you get a raise every time your health insurance plan raises it rates. It's often an easy thing to negotiate because it is orthoganal to salary and people usually dont compare all the minor compensation variables when comparing to other similar employees and often a hiring manager is working with a salary range that doesn't include other compensation.

blackguardx• 11 years ago

Interesting. I've never worked at a place that didn't have standard packages for everyone. They even give everyone the same tables of what they will pay with different plans. What size were these companies?

phkahler• 11 years ago

Employer provided "health insurance" is a terrible idea that needs to go. It creates friction in the job market. It shifts costs to the government - companies pay lower premiums because working people are on average healthier. As OP says, it hides the full cost from the employee. I really don't understand how this practice came to be or why people think it should continue.

zrail• 11 years ago

After WWII wages were frozen for years, but companies still had to compete for workers. Company-paid health insurance isn't considered wages, so companies were able to entice people with it. Same with "company cars" and various other fringe benefits. Over time health insurance became institutionalize and necessary, which led to the situation we're in today.

tqtthrowaway1• 11 years ago

Whenever there's an article about the lack of jobs or pay for the middle class, the first thing I do is hit Ctrl+F and start typing "immigration". This being the New York Times, it doesn't show up, for a variety of partisan and ownership-related reasons.

Supply and demand applies just as much to labor markets as it does to any other. The "vanishing pay raise" makes a lot more sense when you consider the deliberate increase in labor supply for the explicit purposes of lining the pockets of crooked billionaires like Mark Zuckerberg and Carlos Slim.

gaius7• 11 years ago

It is nothing to do with immigration really, since the H1B is explicitly not an immigration visa.

Chinjut2• 11 years ago

"I suspect this might have something to do with the rising cost of health insurance"

"Whenever there's an article about the lack of jobs or pay for the middle class, the first thing I do is hit Ctrl+F and start typing 'immigration'."

"I have one word. Technology."

"It's simpler than they make it out to be: there is no demand uptick."

An awful lot of theories and certainty here on Hacker News...

ThomPete11• 11 years ago

Yeah they are called perspectives which is one of the things I love about HN :)

The discussions on here are mostly of very high quality even when people disagree furiously.

Chinjut2• 11 years ago

I'm not complaining. Just amused.

RodericDay• 11 years ago

He's pointing out that every other poster is cocksure with their pithy silver-bullet explanations.

danmaz74• 11 years ago

although some fear that inflation will climb if the jobless rate is that low

AFAIK the reason why inflation climbs when the jobless rate is very low is because with few jobless the cost of labor usually increases, and THEN prices increase to reflect higher costs. But if there are no wage increases, there is no reason for a low jobless rate to increase inflation...

compostor42• 11 years ago

The enormous amount of immigrants (both legal and illegal) to the US is definitely a huge factor.

They say the current population won't do the unpleasant jobs that immigrants do because the pay is too low. It seems no one has stopped to consider that those jobs pay so low because there is a seemingly endless supply of cheap immigrant workers to do them. It drives wages down and provides little incentive for automation.

The ancient Greeks invented the steam engine but never really used it because they had no shortage of slave labor. There was no incentive to further develop that technology.

hwstar• 11 years ago

Over the long term, wages in first world countries will remain flat or decline and meet the third world countries in the middle.

The Mystery of the Vanishing Pay Raise

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