Wage Stagnation

https://slatestarcodex.com/2019/02/25/wage-stagnation-much-more-than-you-wanted-to-know/

by myle • 7 years ago

259 257 7 years ago

leereeves4• 7 years ago

The problem here is that the comparison is between median wages and total productivity, without demonstrating that the median worker is in any way responsible for the increased productivity.

If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

I'm not necessarily saying they aren't, just that such an argument should be made explicitly.

expertentipp2• 7 years ago

Nowadays within couple of hours while sitting in front of the computer I can plan and book my holidays, submit a bank transfer, submit tax declaration, buy new clothes, and extend the insurance. Unthinkable until the late 90s. This technological leverage is created pretty much by a "median worker". Where the margins from this turbo-raise of productivity go? Because they certainly don't vanish neither reach the worker.

leereeves4• 7 years ago

The people who created that technological leverage are far from median workers, and earn many times the median wage.

rejschaap• 7 years ago

You can do all of this in one evening instead of over the course of a month. That is how it reached the average person. The average worker did not contribute to making this happen, but they benefit a lot.

raducu• 7 years ago

The margins go in the consumer's pocket and that of the owner of the services you are consuming + you are consuming higher quality services/products. Also, as the consumer, you pay with your own free time: every time you self check-out, do your own accounting, tax fillings and so on, you are doing (a bit less) work that was done by an employee in the past. So the margins mostly go to the owners of the services you are consuming (i.e. tax haven accounts).

fnordsensei3• 7 years ago

Rather than being an ethical or moral question of whether they "deserve" (i.e., they're only deserving of it if they are directly responsible for it) a better wage or not, why not just look at it like an indicator that the overall economy might be becoming less healthy?

A low-income earner is more likely put any extra money they acquire towards the local economy rather than, for example, lodging it in the Cayman Islands for storage. This is good for keeping the local economy healthy, from which may come the next person to create a technological breakthrough.

We generally want the median person to have money to spend with our businesses rather than slowly edging towards living in a slum.

lazyjones3• 7 years ago

why not just look at it like an indicator that the overall economy might be becoming less healthy?

Because it isn’t. We have other indicators for that and GDP growth is one of them. Median wages are affected by so many factors that they invalidate such conclusions. Also, wages aren’t the only money available for spending, there‘s capital income too.

Vinnl7• 7 years ago

If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

I usually turn this question around: as a programmer, I'm responsible for a greater share of productivity than some people in different functions who are paid less. However, I do not work harder, do not sacrifice more, do not hate my job more - more likely the opposite, even. Why am I entitled to a larger share of profits than other people?

(I understand that the system generally "works better" this way. However, since we're talking about being entitled to something, I wonder if there's a moral argument that can be made.)

zeroname5• 7 years ago

Why am I entitled to a larger share of profits than other people?

You aren't entitled to profits at all. Profits come after cost. You're cost. You cost more because the demand for your labor versus the supply of your labor raises the price of your labor.

Don't assume this will go on forever, the next bust may well wipe out the huge wage advantage of today's tech workers.

leetcrew3• 7 years ago

imagine a laborer who works double the hours you work, exhausting his mind and body more in a single hour than you do all day. but all this mind and back breaking work is to create ugly mud sculptures, unwanted by all but the most eccentric connoisseurs. do you think he is entitled to even greater compensation than you, because he works harder? would you find it fair if he were compensated exactly the same as you?

briandear3• 7 years ago

It doesn’t matter how “hard” you work, but the value of the work - and value is 100% determined by how much people will pay for your output, and that price is determined by the scarcity of your product.

A guy that digs gold out of the ground is going be able to sell that gold at a higher price than a guy digging worms; while working at exactly the same “hardness.” There are those that would suggest that both should be paid the same, which is ridiculous as that suggests a pound of worms is as valuable as a pound of gold.

deogeo6• 7 years ago

Shall we also discuss how much of other people's work capital is 'entitled' to?

E.g Uber's executives are very well compensated, and are nothing but middle-men. Middle-men that are easily replaced, as demonstrated by the Uber clones in cities that banned Uber.

leetcrew3• 7 years ago

if they're as easily replaced as you say, they won't be very well compensated for long.

bryanlarsen2• 7 years ago

Uber's executives rely on:

- the rule of law and a court system that allow VC's and others to sign billion dollar contracts with only minor fears of being cheated

- a large supply of underemployed people rich enough to own a car, but desperate enough to cash in the depreciation by driving for Uber

- a massive public road system

- a market

- and much more.

For all of this, they pay very close to nothing as their income is mostly capital gains.

snarfy• 7 years ago

Nowhere on that page did I see a chart showing the dramatic increase in CEO pay since 1950. The money is still there, it just going to the top.

Are you saying the CEOs are solely responsible for this productivity gain?

moosey• 7 years ago

If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

I saw this as an argument against profit. If you changed 'the median worker' to 'the capitalist', it might show up in 'The Communist Manifesto'.

CoolGuySteve2• 7 years ago

There’s a whole section about redistributing executive pay.

Maybe you should look harder.

spamizbad• 7 years ago

If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

With most salaried, white collar jobs your payscale is almost completely decoupled from your productivity. You are paid based on the market value of your skills and experience. You're essentially a commodity.

We see this in the software industry all the time: There's little salary difference between a "good" and "mediocre" programmer. The so-called "10x" engineer, myth or not, is likely to make just 10% more than their peers, if even that, not 1000% more.

treis3• 7 years ago

The so-called "10x" engineer, myth or not, is likely to make just 10% more than their peers, if even that, not 1000% more.

That doesn't seem right. An entry level programmer will make around $100k. There are definitely engineers out there that are paid more than a million a year

taneq2• 7 years ago

I'd expect that eventually the so-called "10x engineer" (if they have any kind of business acumen) eventually finds their way into a role where they are paid proportionally to their productivity, whether that's by becoming a business owner or by an explicit profit-share arrangement.

In the meantime, of course, it's as you say - and in fact they may be paid less, because they're spending their energy on engineering instead of political maneouvering.

ovi256• 7 years ago

There's little salary difference between a "good" and "mediocre" programmer.

An essential condition for things to be commodities is that they're fungible. If we accept that your "good" and "mediocre" programmers are commodities, there's no basis to call them "good" and "mediocre" because they're fungible to their employer. And if there's a basis to do that, how are they fungible ?

mcv5• 7 years ago

Can anyone be said to be responsible for the increase in productivity? It's probably largely a matter of increased technology and automation, as well as cultural improvements like the way we work and organise work. These are mostly collective efforts.

Sure you can point to any individual employee and declare "you didn't invent or buy that computer that makes you work more efficiently, so why should you get more money?", but the CEO or shareholders didn't invent the computer either, and buying a PC is a fairly small expense, so why should they be the ones to benefit from the increased productivity?

Because they hold power and the regular employee doesn't. I think that's the only real explanation for this discrepancy: CEOs and shareholders have power, while the regular employee doesn't, and that power imbalance means more money goes to the CEO and shareholders.

taneq2• 7 years ago

Sure you can point to any individual employee and declare "you didn't invent or buy that computer that makes you work more efficiently, so why should you get more money?"

It's less about that as it is about your three remaining employees being rewarded handsomely for the highly productive work they do on their computers, but the seven who you let go and who now work at Walmart are no longer paid wages that are coupled to that increased productivity.

AlexB138• 7 years ago

the CEO or shareholders didn't invent the computer either, and buying a PC is a fairly small expense, so why should they be the ones to benefit from the increased productivity?

Because the company owns the computer, and the work done by it. The employee is paid to do that work, and the CEO is paid to do their work. The company (and the market) decides what they are willing to pay the CEO, the worker, and the share holders, and each of those parties agrees to it. These are not slaves, none of these people are forced into these agreements against their will.

Because they hold power and the regular employee doesn't. I think that's the only real explanation for this discrepancy: CEOs and shareholders have power, while the regular employee doesn't, and that power imbalance means more money goes to the CEO and shareholders.

Or because they are worth less in the market than the CEO is. What those parties have is "leverage" and "marketability" and "ownership", not some evil "power" construct. Ownership is available to general employees in a co-op, and people are free to join them, or start their own companies. If they choose not to, that's their choice.

occamrazor• 7 years ago

Indeed, _total_ productivity should be compared to _average_ wages. The difficulty is that, at the higher end of income, the distinction between wage, business income (eg consultants), and investment income (eg stock based compensation) is not clear.

eli_gottlieb2• 7 years ago

If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

If the median worker isn't responsible for the increased productivity, it follows trivially that you can do something to increase the median worker's productivity, earning higher profits, until all firms in your sector do it and you all end up having to compete for the increasingly productive workers by raising wages.

https://www.epi.org/publication/understanding-the-historic-d...

The most likely inference, a priori, for where this process has broken down is: employers aren't having to compete for workers very hard any more, so competition doesn't push labor prices up.

RobertoG2• 7 years ago

>"[..] are they entitled to a share of the work of other people?"

The work of other people? Is productivity increments the result of some people working harder instead of and increment in technology and knowledge?

tabtab4• 7 years ago

Re: If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

Other people? The rich? Or even machines? There are several questions raised here.

Even if we go with the presumption that the rich are simply more productive/useful and "deserve their income", that still doesn't answer the question of why inequality is increasing.

Did the rich simply start to get significantly better than the rest around 1980? Instant evolution? Or perhap the economy is becoming "winner take all". The more you control the more you CAN control. For example, the big tech co's have huge patent portfolios in which to sue any upstarts from entering their turf. Their big competitors have their own giant portfolios to defend against each other's patent claims via counter-suits. Thus, smallbies are essentially locked out, forced into niches.

Even if we assume they deserve their big incomes, it could still pose a risk to democracy as the rich buy influence. The Supreme Court more or less has concluded money is free speech, meaning the rich (and corporations) can speak louder than the rest. Their point of view gets splattered everywhere and counter arguments from regular folks get drowned out. And there is campaign donations, which is legalized bribery, which the Court also upheld. The rich can use their influence to get even more politicians and judges in play which favor the rich, creating a runaway train of influence. "Slippery Slope" is often considered a debate fallacy, but we are sliding into inequality in practice. Sliding does sometimes actually happen. Unions are being gradually stripped of power by politicians and the courts, for example.

Therefore, even if one accepts that the rich deserve most their money, their spending power may have the practical side-effect of undermining democracy and equal representation.

And, how many mansions, Maseratis and swimming pools does one "need" to be sufficiently rewarded? 7?, 20?, 82? I thought it really telling that John McCain lost track of how many mansions he owned.

If we assume it's machines that have generated the increased total wealth, then obviously machines don't want nor need money (although I'm working on a Greed-A-Tron). So who gets it? The owners of the machines typically do, but are we just rewarding them for simply owning more machines than you and I? Owner take all?

darawk2• 7 years ago

Did the rich simply start to get significantly better than the rest around 1980? Instant evolution? Or perhap the economy is becoming "winner take all". The more you control the more you CAN control. For example, the big tech co's have huge patent portfolios in which to sue any upstarts from entering their turf. Their big competitors have their own giant portfolios to defend against each other's patent claims via counter-suits. Thus, smallbies are essentially locked out, forced into niches.

The argument is not quite "winner take all" but as the article said "winner take most". We have increasingly become a knowledge economy. Technology has created a multiplier effect, where the productivity of the top decile or so of performers is magnified significantly by software and other things, making them have even more of an edge over the bottom 90%.

Halluxfboy009• 7 years ago

One more mystery: if all of this is true, why isn’t small business formation higher? After all none of these factors (besides mismeasurement) applies to you if you have a small business.

But if anything, business formation is down.

(Also, the charts by educational attainment are meaningless. There has been a huge shift within categories. Being a high school dropout in 1960 meant something completely different than today)

lotsofpulp3• 7 years ago

Consumers value the benefits of efficiencies of scale, such as online ordering, being able to return anywhere in the country, rewards programs, being able to find consistency in quality wherever you are, etc.

It's also impossible to compete on price with bigger competitors. How can a small business compete with Costco? Technology has allowed the bigger players to wring out all the efficiencies bringing margins down to as low as possible, so it's only viable to start businesses that have higher margins, such as professional services.

pas6• 7 years ago

Also anything that you can sell as high value, to support your high margin. Hence the craft beer, artisanal soap, etc. (see also Etsy and co.) But usually that doesn't require people to start a small business, nor do most of these etsy shops are really able to support/become one.

adrianN2• 7 years ago

Because business formation is pretty risky and, to me, seems to be getting riskier as you have to compete with global players in almost every market.

chii• 7 years ago

Because business formation is pretty risky and, to me, seems to be getting riskier as you have to compete with global players in almost every market.

so by not risking, isn't it then "correct" to say that an employee shouldn't reap the rewards that the owners currently get as they bear the risk?

ljf• 7 years ago

Not sure about US - but for the UK: Number of UK start-ups rises to new record | Financial Times (2017) https://www.ft.com/content/cb56d86c-88d6-11e7-afd2-74b8ecd34...

Also: https://www2.gov.scot/About/Performance/scotPerforms/indicat...

mcv5• 7 years ago

Netherland has seem an immense growth in self-employed people.

If it's not the case in the US, could that somehow be related to this decoupling?

danaris• 7 years ago

Seems to me that a major reason there are fewer small businesses being created is because real wages are stagnant. You need extra money to start a business.

Loughla4• 7 years ago

Add to that the costs of healthcare, which in the US tends to be tied to employment, and bingo. There's your answer. People have no money, nor no safety net if something goes wrong, so they stick to their garbage 9-5 instead of trying something new.

badpun• 7 years ago

Is it because more and more areas of business activity are conquered by large entities and thus are hard to enter into? As a small guy, you won't achieve economies of scale of Wallmart or marketing of McDonalds, while 70 years ago, if you were opening a convenience store or a restaurant, you only had to worry about local (non-chain) competition.

pas6• 7 years ago

Is it because more and more areas of business activity are conquered by large entities and thus are hard to enter into?

Is that true though? Artisanal, craft, handmade, premium, bespoke, etc. of every kind of bullshit is booming. Etsy, indiegogo, kickstarter, eBay and whatever else is big business for small producers of gadgets, trinkets and everything cute, right?

That said, yes, Amazon and other forms online shopping, is pushing out small shops, but cafés are opening everywhere in cities. (Urban revival and whatnot.)

But ... without hard numbers there are just feely-goody impressions, so I have no hard belief about this, just trying to offer a coutnerpoint.

JaimeThompson• 7 years ago

A factor could be how difficult and expensive it is for people to get health insurance on their own.

achillesheels• 7 years ago

I see this as the real crux. New business starts necessarily take labor out of the market while also increasing its demand (maybe not instantaneously).

I will be controversial and argue that the male sex compounds their income at a greater rate than the female sex principally because their genetical nature causes investment activity contra females which generally consume. Therefore With more women in the labor markets, there has been a drag on wages.

RickJWagner• 7 years ago

I'm glad for wage stagnation, so long as inflation stays down.

For people at or near retirement, it's a great thing. Nothing erodes savings like rising prices.

close044• 7 years ago

Wage stagnation that comes attached to increase productivity could be offset by a shorter work week.

I mean if you are ~2.5 times more productive but the wage can't increase due to other reasons, why not take different actions to consider employee happiness just just employer profits?

derekp7• 7 years ago

You could also lower the price of the items sold so that the average consumer can afford more stuff

mikeash• 7 years ago

You just have to ride that fine line between oppressing people enough to enjoy cheap living, and oppressing them so much they decide to rise up and stick a pitchfork in your eye.

sltkr• 7 years ago

I believe the discussion is around wage stagnation after correcting for inflation.

zeroname5• 7 years ago

Wages have been "decoupled" from productivity because they weren't be coupled in the first place. They were correlated because productivity and economic growth are correlated and economic growth and demand for labor are correlated.

However, wages (like all other prices) in a market are set by supply and demand. Wages will rise to meet demand but not higher, irrespective of productivity. Furthermore, productivity increases through automation decrease demand for human labor and therefore suppress wages.

BerislavLopac• 7 years ago

This is a very important point. The graphs in the original article -- especially when taking into account those from other countries -- essentially shows that at some point the increase of productivity is due to automation, and that the human component in the workplace is becoming less relevant.

daze422• 7 years ago

This, exactly. As technology continues to move forward and make things even more efficient, I would expect this gap to continue to widen. I'm confused as to why anyone would want it to remain linked. As the gap widens, the demand for Universal Basic Income will rise and gobble up the working class and, eventually, even the most complicated jobs, until money is considered worthless and all basic needs are met by robots. Given the option to have robots do all the work and humans reap all the benefits (besides skynet), who wouldn't take it?

helen___keller• 7 years ago

As the gap widens, the demand for Universal Basic Income will rise and gobble up the working class and, eventually, even the most complicated jobs, until money is considered worthless and all basic needs are met by robots.

The problem here is that nobody knows when we'll get there, if at all. UBI seems like a solution designed for a society where most people have been displaced from the need to work, but it doesn't look like society is there yet. In the meantime we still have people who are struggling to even exist. If the gap to achieve Full Automation in most sectors is multiple generations, you might long reach social unrest before you can even "justify" UBI from a political perspective.

Right now billions in capital investment haven't quite mastered the art of getting cars to navigate roads by themselves, and some industry leaders (Waymo CEO) are skeptical we'll ever get level 5 autonomous cars. And this is all for one single and self-contained task in the human existence (which doesn't even rely on human appendages! try to imagine automating handiwork).

If 70% of people are without work, UBI is an obvious solution. But if 1-10% of people are without work and 40-60% are paid peanuts for shit jobs, what's the solution? If UBI is still best here, how do we justify that to society without appealing to Full Automation?

Illotus2• 7 years ago

Indeed, the collective bargaining power of employees is less than it used to be. This will likely become more and more an issue in the current century as the benefits of automation will line mostly the pockets of the owning class. The current concept of fairness of pay and trust in market forces is evident in these comments as well. I think at some point there needs to be some adjustment there. Maybe that will happen before the middle class disappears completely.

Loughla4• 7 years ago

Maybe that will happen before the middle class disappears completely.

I doubt it will. How much of human history even contained a 'middle class'? What tells us that it's anything more than just a blip on the radar and an odd one-off outlier?

sparkie2• 7 years ago

However, wages (like all other prices) in a market are set by supply and demand.

This should be the case, but minimum wage laws completely screw up the market. The unintended consequences of minimum wage result in almost the opposite effect of what they are intended to achieve. They keep wages artificial low, and increases in minimum wage push the costs of all goods and services upwards, as well as cause disemployment.

Wages have been "accidentally" coupled to minimum wage policies which is why there is less correlation with productivity. How this article can be so long and barely mention its effects baffles me.

mindB2• 7 years ago

The article devotes significant time toe discussing the effect of minimum wage policy under point 8. He makes a convincing argument that it doesn't explain much of the effect.

mannykannot• 7 years ago

There appears to be a section missing: the one that discusses the consequences of the globalization of the labor market, especially with regard to non-physical labor. Arguably, this is a consequence of policy changes, but it is not discussed in that section, either.

mc32• 7 years ago

That’s probably because it’s antithetical to current economic and political thought (free global trade is an unalloyed good). Of course this has an impact. It’s the converse of the rising foreign economy where the local worker has seen their incomes rise due to export driven economics. They’re exporting their labor, we’re importing to complement our labor and that has placed negative pressure on wages.

It’s clearly seen in farm workers. Large agri businesses say that unless they have cheap imported labor, they can’t afford workers. But that does not stand. In their current economic model cheap labor is necessary, but it’s not inherently necessary.

The late 1990s to early 2000s anti-WTO leftists understood this, Perot understood this, but they were vanquished by non labor interests.

bryanlarsen2• 7 years ago

In the conclusion the author guesstimated globalization was ~5% of the effect. It'd be nice to see the reasoning for the guesstimate.

CoolGuySteve2• 7 years ago

Particularly telling is that he compares the gap between the US, Germany, Italy, Spain, and France.

I really want to see the same charts for coastal vs inland China and Mexico. Did a rising tide lift all boats there or not?

RPLong2• 7 years ago

The problem is mostly one of data availability. China has plenty of data, but not all of it is credulous. That, and the fact that comparisons of any two nations will always be susceptible to the accusation that the data has been "cherry-picked" to show a favorable result.

But the global data on poverty is basically unassailable. Poverty has declined absolutely everywhere. The rising tide lifted at least the very poorest boats, whatever can be said for the American middle class notwithstanding.

xiler• 7 years ago

I'm not sure about 'non-physical labor' but an IMF report [1] found that in many industrialized countries, such as the US, Germany, Japan, etc., depressed wages correlate strongly with low labor union participation rates. Surprisingly, other factors such as globalization and automation where found to be of little significance.

[1] https://www.imf.org/external/pubs/ft/fandd/2015/03/pdf/jaumo...

gerbilly3• 7 years ago

Real wages haven't increased since 1970.

We only feel richer because:

* Most households have two wage earners now.

* We use lines of credit to borrow for discretionary purchases, we lease cars, pay by subscription for things more.

* We have more gadgets. (Note that this has been proven to make people any happier.)

focusgroup0• 7 years ago

Another factor: The Immigration Act of 1965 significantly increased the amount of labor immigrating to the country

https://en.wikipedia.org/wiki/Immigration_and_Nationality_Ac...

WhompingWindows2• 7 years ago

How does this lead to wage stagnation? You've stated a potential piece of evidence but provided no reasoning to link to your (implicit) claim that immigration leads to stagnant wages. If that's not your claim, feel free to fill out the details.

Arguments have CER - claim, evidence, reasoning. Your comment was missing two.

gregwtmtno2• 7 years ago

I never understood this argument. More people in the country obviously leads to more labor supply but also more labor demand.

moorhosj• 7 years ago

Women also doubled their laborforce participation rate from 30% to 60%.

https://ourworldindata.org/uploads/2017/08/Labor-Force-Parti...

ebog3• 7 years ago

This is a prime example of the Lump of Labor fallacy. https://en.wikipedia.org/wiki/Lump_of_labour_fallacy

Our best studies have shown immigration increases overall welfare. The Mariel Boatlift studies are a good example of this: https://www.jstor.org/stable/2523702?seq=1#page_scan_tab_con...

LeifCarrotson• 7 years ago

Note that this has been proven to make people any happier.

s/Note/Not/? Or are you missing a "not" somewhere else?

gerbilly3• 7 years ago

Sorry yes, you are right, I had a typo in there. I was trying to say that more gadgets have NOT been proven to make anyone happier.

michaelbuckbee• 7 years ago

There's a real split in goods and service prices where certain classes of goods have risen incredibly (Healthcare and College) and others have fallen (computers and TVs).

Check out this chart to get a sense of it: http://www.aei.org/publication/chart-of-the-day-or-century/

iooi• 7 years ago

This is false. [1] Real income has doubled since 1970 for individuals. I'm not sure why so many people seem to think that, I'm constantly having to reply to posts like this on HN and Reddit with real data but a lot of people just go along with it even though the people that post these claims never substantiate it with data.

I think there must be a psychological factor that makes people feel good about how our generation has it so hard? I would truly appreciate if someone could explain why.

https://www.census.gov/data/tables/time-series/demo/income-p...

rexpop• 7 years ago

Beware the Flaw of Averages, my son:

https://aneconomicsense.files.wordpress.com/2015/02/going-fr...

greeneggs2• 7 years ago

Maybe you would have more luck if you cited better sources. I clicked on your link and just got a page of dozens of Excel files. Which one are you referring to?

On P7, it says median income in 2017 was $31,786. In 1974 (as far back as the data goes), median income in 2017 dollars was $23,984.

That's only a 32.5% increase, not 100% like you claim.

TomMckenny4• 7 years ago

Because medical costs, schooling costs, real housing costs etc, etc, etc have far more than doubled: merely adjusting for inflation is completely unrelated to change in cost of living.

It's like converting a bank account to Lira and thinking it makes you richer.

mbell3• 7 years ago

The general claim about 'Real Wage' stagnation is based on the median of full time workers. There is data for this in your link:

Men: 51,885 (1970) => 55,834 (2017), a 7.6% increase

Women: 30,733 (1970) => 44,379 (2017), a 41% increase

Also note that this data is using CPI-U-RS adjustment instead of CPI which is what is normally used for 'Real Wages'. There is some debate over the accuracy of CPI-U-RS, but it's worth noting that it's not directly calculated prior to 1978 so becomes more questionable. Comparing to 1978 your numbers are basically equal to 2017 income for men. For women there is still significant growth but I think it's hard to draw any conclusions since a very large number of women entered the full time workforce and took on higher level positions between 1970 and 2017.

I'm assuming you are getting 'doubled' by reading the per capita income data which is not a particularly accurate way to look at this. That is just taking the sum of the total income and dividing by the US population, i.e. it's a mean not a median. It's going to be skewed by high income individuals and also by the nature of labor force participation.

jahewson2• 7 years ago

No, you're misreading the data. Comparing GDP, household incomes, real wages, total compensation, and household incomes is a non-trivial activity - it's easy to compare two numbers which are not actually directly comparable. Plus you have long-term factors such as an aging population, changing workforce participation, a shift from employers increasing wages to increasing benefits, and a larger share of wages going to the top 1% at the expense of everyone else. Combine that with increases in living costs which are typically not included in the measure of inflation, e.g. housing, and you've got a complex piece of data analysis to grapple with.

If you want to do a simple but meaningful ballpark comparison, compare total compensation with GDP [1]. It decreased by 4.5% from 1970 to 2016, meaning that workers are taking home a slightly smaller share of the "real" economy. Now recall that many costs have increased above the rate of inflation, e.g. housing, medical, education, so that money doesn't go as far as it used to.

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

coldtea• 7 years ago

Well, is there a psychological factor that makes people disregard observable reality and seek fake safety in numbers?

The census data don't show anything of the kind of "doubling" for the average american.

The table is "per capita". And even at that, it doesn't take into account the cost of college, house, services, etc. relative to 1970s.

https://www.conradbastable.com/essays/the-bermuda-triangle-o...

https://www.conradbastable.com/essays/the-uncharity-of-colle...

conanbatt4• 7 years ago

Because a certain breed of politicians do a great disservice to the public by straight-up lying and deceiving the public.

``` In a country where no law can be voted, where no tax can be imposed, but with the consent of those whose dealings the law is to regulate, and whose pockets the tax is to affect, the public cannot be robbed without first being imposed on and misled. Our ignorance is the raw material of every extortion from which we suffer, and we may be certain beforehand that every fallacy is the precursor of an act of plunder. ```

MCsh4rk• 7 years ago

Well, there's been a constant inflation which shows a significant increase in wealth. If someone was earning 500$/month in 1970 for some job and is making 1500$ today for the same job, that person's salary potentially increased 3 times. It probably isn't really be technically the case, but there is definitely some of that which makes us feel richer (because we are).

Theodores• 7 years ago

We also have bullshit jobs. Take a look around you and see the proliferation of pointless jobs. In the office there are plenty of them, within the world of internet development there are plenty of them. Out in town there are plenty of them. You can feel richer just because your job adds to the bottom line instead of costing the bottom line, you are therefore not with a bullshit job, therefore you feel richer than that temp who muddles through data that really needs just one SQL query to make proper sense of.

For a reality check it sometimes helps to think how you used to live in the past. Maybe you spent $$$ on a hobby every week, had a fleet of vehicles, went on holidays, had spare rooms in your house. Or maybe you had friends that had all these things and worked a job where they were back home by six every day.

https://theanarchistlibrary.org/library/david-graeber-bullsh...

ebog3• 7 years ago

This is probably a better explanation for how wages have grown. The biggest problem is healthcare costs have grown too.

https://www.minneapolisfed.org/publications/the-region/where...

bko• 7 years ago

* Most households have two wage earners now.

Fully 28% of households now have just one person living in them, more than double the rate from 1960 (13%), reports the US Census Bureau. As a result of continued shifts in household types and family dynamics, the average household size is 2.53 this year, down from 3.3 some 50 years ago.

Single person households aren’t just restricted to youth. In fact, almost one-third (29%) of adults aged 65 and older live alone. In a fairly dramatic shift, householders aged 65 and older outnumber those under the age of 30 by almost a 2:1 ratio (31 million and 15.8 million, respectively), whereas these householders had been at virtual parity in the late 1970s. (Households are occupied housing units, and householders are the people in whose name the housing units is rented or owned. They must be at least 15 years of age.)

* We use lines of credit to borrow for discretionary purchases, we lease cars, pay by subscription for things more.

I don't see whats wrong with this. Availability of credit has helped a lot. For instance, mortgages used to have much higher interest rates and shorter term

* We have more gadgets. (Note that this has been proven to make people any happier.)

I thought we were talking about wages not happiness. What's the point of wages if you don't have access to goods?

https://www.marketingcharts.com/demographics-and-audiences-7...

onlyrealcuzzo2• 7 years ago

Credit has largely been the best thing to happen in the world. But lower interest rates have not made housing more affordable. Neither have longer terms. Both of these things, in the long run, just make build-able land more expensive -- which keeps the mortgage payment / income ratio pretty constant in the long run.

Obviously Real Estate is highly cyclical. So you can look at any two points in time and make conclusions like low interest rates or longer terms are great for affordability. But if you look over the long run, it's just not the case.

Land price is a function of interest rates, taxes, lending standards, purchasing power, and speculation -- there are no inputs like with a refrigerator. And land is not a commodity in the same vein as, say, corn. If the demand for corn goes up, people grow more corn. If the demand for land goes up, VERY RARELY do we make more land.

throwawaymath• 7 years ago

Note that this has been proven to make people any happier.

Requests for citation are a little gauche, but if you tell me something is proven without any evidence you're kind of forcing my hand here.

The rest of your comment could probably do with more rigor as well. Can you quantify exactly how many more households have dual earners now? Likewise do you have any numbers pertaining to lease versus purchase statistics between 1970 and 2018?

jfengel• 7 years ago

I think that there's a typo, and it meant to say "not that this has been proven..." Still not a documented assertion, but it's kind of a negative statement that's hard to prove one way or the other. It's believable that we've simply become hedonically accustomed to gadgets that made us happy to get, and would be unhappy to lose, without actually contributing to an overall increase in happiness -- but that's hard to quantify.

I'm sure people have tried, and such attempts should be cited, but it doesn't seem unlikely.

gerbilly3• 7 years ago

Sorry, I had an unfortunate typo in my comment which inverted the intended meaning.

I was trying to say: Not that [gadgets] has been proven to make people any happier.

And the support I would be inclined to give for that is the: https://en.wikipedia.org/wiki/Hedonic_treadmill

By the late 1950s most households had washing machines and gas or electric stoves furnaces and water heaters (the old versions of these were coal or wood fired and required refilling) and most of the drudgery was eliminated from household chores.

This did, in my opinion, increased quality of life significantly.

However, I'm not sure much was gained in terms of happiness from going from Black and White TVs to 4K televisions with PVRs.

Pretty much the same entertainment value could be gotten from a back and white TV as with a hi def set. You could watch the hockey game on either, and the experience was basically the same.

As for my claims about real wages not having risen since 1970, other commenters have done a better job of defending that claim. (mbell for example)

opo• 7 years ago

...Real wages haven't increased since 1970.

From the data from the Fed, this is only partially true if you ignore non-cash compensation:

...A job usually also involves other types of compensation, such as the employer’s contribution to retirement pensions, health and life insurance, paid vacation and other leave, and any taxes the employer pays on these benefits. These benefits are now a substantial part of the cost of an employee, and they appear to be growing. The top graph shows that labor compensation growth is frequently higher than real wage growth. We can make this point more clearly by using index values: In the bottom graph, we set both series at 100 in 1970 and let them run. Real compensation growth is significantly higher: the 60% increase looks much better than the 3% increase for real wages.

https://fredblog.stlouisfed.org/2016/09/wages-with-benefits/

Chico11Kidlet• 7 years ago

Of course any discussion about labour vs capital share of gdp needs to talk about land as well. So ‘5. Could Wage Decoupling Be Explained By Increasing Labor-Vs-Capital Inequality?’ would be more interesting with land.

That also came up in the discussions around Piketty.

beqcq• 7 years ago

It's because of femi nism: now every household has two wage earners, so it makes sense for wages to split in half.

SketchySeaBeast• 7 years ago

While I wouldn't be surprised that having two wage earners, and introducing a glut of new workers into the pool would certainly increase job competition, I really think that blaming feminism is pretty simplistic - it could be that culturally our desire for more required that we needed the spending power of two adults (not knowing that would hamstring our later earning potential), or it could be that due to a drop in birth rate due to modernization and standard of living increases women simply had less reason to stay home and more time for out of home activities.

daze422• 7 years ago

This is a good point. It's simple economics. If there is a sudden rise in worker supply, but not a corresponding increase in demand for those workers, wages must fall to accommodate the influx.

danharaj• 7 years ago

No, it's not a good point. Do you think women were just shuffling their feet at home before they became wage earners? Technological improvements that reduced the total domestic workload for a household made it feasible to have two earner households (as a side note it didn't eliminate domestic work which working women continued to do disproportionately to men to this day).

So the total labor required to live and work successfully in industrialized nations dropped but instead of that leading to more individual wealth it just meant that households now had allocated more of their labor to wage labor compared to before where half or more of the labor of a household was simply unacknowledged and unpaid.

And it should be noted that poor women had been working. For less compensation than men, while performing domestic labor. Middle class and upper class women getting jobs was another story.

Boo, hiss. Feminism. What an odious little comment thread.

ozzyman7004• 7 years ago

wages are drawn from the output of workers labor, not the other way around. At most, wages are an advance on the return a worker would expect from their labor. Subjugating half the population into not being part of the labor force is not an aspect of a free market in my opinion.

SolaceQuantum2• 7 years ago

Because one wage earner cannot do housework or child rearing or other behaviors now(as they are working another job), wouldn't that cause a roughly 1:1 ratio of missing worker to demand for a new job to take care of the labor necessary? e.g. No time to cook, so buy more food on the go, no time to clean, so buy labor to clean, no time to organize home, buy labor to organize, etc.?

willpiers• 7 years ago

That's correct, but none of those three people would then make as much money as the original single wage earner. And the couple wouldn't be getting ahead nearly as much as one would hope, since they have to pay for all that extra labor.

TheShrug• 7 years ago

I always find this very interesting. You feel strongly enough about your point that you need to say it (albeit using a throwaway account). My reaction to your point as well as some comments above about an influx of immigration is that I think it is worth discussing. Instead of discussing it though, you make a quick remark that intends to blame wage stagnation solely on the enfranchisement of women when the issue is very likely more complex and can perhaps can be resolved without alienating and stripping the rights and agency of 50% of the population.

But the quick remark and the way you phrased it makes it seem like you just have something against women in the workplace, I'm guessing you feel threatened in some way. I don't think it would be a stretch to assume that you think the abolition of slavery also affected wages similarly.

belorn2• 7 years ago

This is not what the data show if we overlap female participation in labor markets with the graph of the article.

https://ourworldindata.org/female-labor-supply

At 1948 the US had around 25% women in the work force. By 1973 that number is around 50%. The article say that wages increased proportionally with production between 1948 to 1973, and only after 1973 started to drop.

There is just no relation between those two graphs that support the claim that that one caused the other.

shams93• 7 years ago

It's worse than it looks when you add massive education debt and in states like California we have seen the vast share of tax increases landing on wage earners plus incredibly high rent.

WhompingWindows2• 7 years ago

Yes, I'm not sure if the linked post discusses education debt. Even if wages increased 50% more than we think due to inflation issues, as the blog post claims, I don't know how a slightly better wage makes up for vastly increased education/housing spending. I don't know if the CPI or productivity account for either of those, either.

3pt14159• 7 years ago

I've thought about this for the past decade or so. It's obviously going to be many simultaneous factors for any type of decoupling this pervasive in society, but I tend to simulate things out in my head and here is what I've largely ruled in and out.

1. It isn't gross executive compensation. Holding everything else constant, executives are very good at negotiating the very best deal for themselves and corporations live and die by the law of the jungle. These two forces balance each other out. Higher executive compensation probably means that executives are more important than they used to be, which I would expect with an increasingly technological society.

2. That said, executives and the wealthy class pay way less in tax than they used to because they're less tied to a region which means they're less civically minded and they're more able to region shop for lower tax rates, leading to a race to the bottom.

3. Computers automate tasks that used to require a high school education. IBM is IBM because they started with cash registers before computers came along. There used to be a banker with a real education in every single town. There isn't anymore and we (especially we!) know why.

4. Communications—starting with the telegraph, but certainly not ending there—make locality irrelevant. Combined with the forces of capitalism (e.g., comparative advantage, re-invested returns) this hyper concentrates specialization.

5. Standardized shipping, especially sea containers. The Chinese government's greatest insight was the importance of physical freight and they leaned in hard to become the centre of the worlds manufacturing by essentially[0] subsidizing it.

6. Many decades of low interest rates, on the half-baked ideas of Keynesian theory of productive capital. Surprise! It turns out that injecting liquidity doesn't necessarily expand business activity. There's plenty of cash locked up in corporations and monied investors. They're desperate for return, but the hyper specialization issue stops them from getting alpha once they hit the market's carrying capacity. Instead these low interest rates go to...

7. Asset bubbles and arms races! Everyone needs a home. Everyone wants a good education at a prestigious university. People buy whatever sugary drink advertises the most. Inflation isn't really low. When a small family home in Toronto costs more money than the median family makes after tax in twenty years we know its bullshit. The inflation rate is papered over because of cheaper manufacturing due to technological progress and international trade, but it doesn't work for housing and many other things.

8. The more complex world is inherently less governable by democracies. A ballot only has a byte of information tops and it only operates over a period of four to six years. This is why lobbyists win, especially in larger democracies like America where the ratio of governed to lawmakers is higher.

9. Surveillance capitalism relies on inexplicable insights and returns. This hyper centralizes wealth whilst simultaneously shrouding the mechanism.

[0] Solving coordination problems is a form of governmental subsidization even if the government in question makes a huge profit. Canada does the same with forestry. I don't know how to square it with global trade.

Loughla4• 7 years ago

That all sounds like it's well thought out - two questions.

So your entire thing is that it's a race to the bottom? What is the purpose of it all then, and how do you think this goes for the next two or three decades?

defertoreptar2• 7 years ago

I'm having trouble understanding why, in a society with ever-advancing technology, why wages would trend with productivity. I'm seeing it like this (and please correct me if I'm off base):

Input = (Labor portion) + (tech & automation portion) + (other portion including things like land, materials, and overhead)

Productivity = output / input

Wages reflect the labor portion's contribution to "input." We know that tech and automation's portion is continuing to increase in relation to labor. Therefore, with this understanding, wages must decrease in proportion with productivity.

pas6• 7 years ago

That might be true, but it seems tech is not that meaningful. Usually technological change carries with it a lot of need for human labor. (Eg. first it needs to be evaluated, planned, implemented, supervised, maintained, repaired, etc.)

And it seems that tech displaces the middle income jobs. ( https://economics.mit.edu/files/11563 ) Which of course puts a downward pressure on wages, which probably contributes to the decline of labor share of income, but this effect is no as big as using a different deflator, nor is the technological change well correlated with the aforementioned decoupling.

crdoconnor4• 7 years ago

It's weird how capital is assumed to take credit for automation. Automation is built by labor.

eli_gottlieb2• 7 years ago

Because we would usually expect employers to compete for workers up to the wage-level of marginal productivity. If you're underpaying your workers and we both have the same technology, I can lure them away by paying them more, until they start demanding wages higher than our tech can allow. To compete with me, you then have to raise wages too, and the market evens out at marginal wages equaling marginal productivity.

One of the Big Questions not covered by the article is: how competitive have labor markets been over time?

thomascgalvin• 7 years ago

Wages reflect the labor portion's contribution to "input." We know that tech and automation's portion is continuing to increase in relation to labor. Therefore, with this understanding, wages must decrease in proportion with productivity.

Let's say I make widgets for $10 an hour, and make 100 widgets per hour. That's $0.10 per widget.

Then, a new tool comes along, and allows me to make 200 widgets per hour. The cost of a widget is now $0.05 per widget.

Who "deserves" this extra profit? Yes, my employer paid the expense for the new tool, but this is (more or less) a one-off expense. They will recoup this cost, and eventually the increased productivity will be pure profit,.

I, on the other hand, am still spending eight hours a day making widgets. My time is now worth twice as much as it was, but I'm still being paid the old rate.

The issue we're seeing with wage stagnation is that companies are making one-time investments and recouping increased profits forever, while employees are working just as hard, but seeing no increased benefit.

And that's just from a simple math perspective. This discussion entirely ignores the fact that when you employ someone, you are essentially renting a human being, and in order for our society to function, that cost must have a floor. Society as a whole suffers when you are able to rent a person for less than it costs to live.

defertoreptar2• 7 years ago

Let's say that you pay that hypothetical employee twice as much, so that his wage increases with the output. In effect, you've negated the technology's effect on productivity. In this case, wages would trend with productivity, but only because productivity would not increase.

derp_dee_derp• 7 years ago

My time is now worth twice as much as it was,

no. your time is now worth half as much as it once was. the tool is what brings the increase in value, not you nor your time.

the owner can now replace you with someone who costs half as much and is half as efficent and get the same result as before the new tool was brought in. even with this decrease in time efficiency, the cheaper less efficient worker has the same value as you did before.

so lets say the owner still wants to increase efficiency but cut costs. ok, they fire you and hire someone else for 75% of your wage and 75% of your efficiency. the owner can still make the same amount of widgets as before in less time and for less cost.

your value has decreased, not increased.

Gpetrium2• 7 years ago

I think a lot of people undermine the competitive nature and other risks that companies have to take in its pursuit of higher profitability only looking at a few with bad practices.

For example, a company may have to spend 1 year's worth of R&D to reach a new tool that would add 10% productivity to its current workforce. What % should go to increasing employees' wage? What are the risks of competitors finding similar productivity gains and not increasing employee's wage, leading to a competitive disadvantage to your company?

When a company hits a breakthrough that adds a multiplier to a part or all of its work, society, including its employees expects it to share more of their gains. What is the right balance? Who deserves the gains and at what %?

I do believe you have some fair points on the employee's side of things and that your last paragraph really hits the nail with a key problem society faces.

AnimalMuppet3• 7 years ago

The pot should get split three ways.

The toolmaker gets a cut. This usually happens in the process of buying the tool.

The buyer of the tool gets a cut. This happens, perhaps excessively.

And the worker should get a cut. The worker who knows how to use the new tool is worth more than the worker who only knows how to use the old tool.

It seems, however, that the workers getting a cut is where the process often breaks down.

Bartweiss• 7 years ago

You're not wrong, but I think this is just ambiguity of terms.

'Productivity' in wage stagnation discussions is implicitly 'labor productivity', which is technically a "partial productivity" measure judging the amount of output generated by a unit of labor. It's not the same as overall output of value. It also isn't the same as "labor portion" in the equation you sketched, though, because capital expenditures like space or technology that increase worker efficiency still constitute labor productivity gains.

(The 'labor portion' there seems closer to what Marxists look at in the labor theory of value - the amount of time and effort expended by labor, isolated from other factors. You're right that that doesn't end up tracking productivity or wages.)

The idea that wages trend with labor productivity, then, is that anything increasing labor productivity increases the output value of an hour's work, which ought to increase the amount of money a worker can demand for their time. They won't capture the full rise in value output, because some of it will be consumed by capital expenses promoting that efficiency, but their wages should trend in the same direction.

Less hypothetically: let's say Cyberdyne's powered exoskeletons become standard for bricklayers, who can then work 20% faster. Since there are plenty of bricks to lay, buying an extra hour of bricklaying now creates more value, and remains profitable at a higher cost. Bricklayers won't simply collect all the extra output value because the amortized cost of the suits has to be covered, but we'd still expect them to get a raise. And if the new tech increased productivity at a lower capital cost per unit than existing tech, the percentage of output captured by labor could even rise.

Now, there can be out increases that don't involve labor productivity, anything from automating away jobs to finding cheap new sources of raw materials. People sometimes confuse the terms and compare GDP or overall productivity to wages, in which case you're right that there's no intrinsic linkage. (Although in the long run, labor's percentage returns tend to outweigh fixed-value changes like trade agreements.) But looking specifically at labor productivity, which should track wages, we still find a close trend seems to abruptly break around 1970.

RobertoG2• 7 years ago

>"We shouldn’t dismiss this as irrelevant, because many things that close only a small part of the gap may, when added together, close a large part of the gap. But this doesn’t do much on its own."

I'm not saying is not true, but I find this idea highly suspicious when there is a clear trend that start at some point.

I mean, what are the chances that many independent things move the trend, in the same direction at the same time, every year?.

mindB2• 7 years ago

He discusses this point in his conclusion. He was also expecting to find a single, clear factor but didn't. Even if multiple factors causing a single large change is relatively rare, we'd still expect to see it sometimes, and he's arguing that this is one of those times. I found the argument relatively convincing.

RootReducer• 7 years ago

The author addresses this in the conclusion, and is also suspicious, but presents some possibilities that explain it.

"This surprises me, because the dramatic shift in 1973 made me expect to see a single cause (and multifactorial trends should be rare in general, maybe, I think). It looks like there are two reasons why 1973 seems more important than it is...."

soVeryTired3• 7 years ago

Once you realise that workers are compensated according to their bargaining power rather than their productivity, none of this should be surprising.

zackmorris• 7 years ago

I was going to say something similar. I'm 41, and when I was a child in the early 80s, work was simultaneously higher paying, a bit more intense than today's standards, but also had shorter hours and more leisure time. Where I live in Idaho, my family and friends were: a dentist (dad) dental office manager (mom), carpenter (godfather), minister, interior decorator, teacher, artist, mechanic, lots of military workers on the airbase by my hometown, etc. Maybe half or less of the mothers I knew worked outside the home. Fathers hunted in the fall to feed their families.

But our community was largely self-sufficient. We didn't have Walmart yet and its associated trade deficits which contributed to the national debt. I'll admit that we were dependent on the nearby military base, BUT that was during the Cold War. Had the base closed (as it probably should have after the Berlin Wall fell, say 1990), I think my home town would have survived on ranching, timber and mining (none of which I support by the way, as Idaho's environment is under constant attack).

Yes I see the contradictions in what I am saying. But I also believe that we could have had a more sustainable future had we faced facts and started the process of transitioning to a 21st century economy earlier. That might have even led to Gore being elected instead of Bush. So it's complicated, and not always easy to discern cause from effect. It's all been 20 years delayed, but there is work in green energy here today.

My feeling is that the American worker HAD MORE LEVERAGE then - in terms of being able to walk onto any construction job, or specialize in a 2 year education trade, or even get free college in many states. We still had unions. We didn't have the welfare cuts that happened under Clinton or the 100,000 factories shut down under GW Bush yet. Quality of life and the feeling of making one's own way was higher then.

If we want to fix our economy, we need to get organized and take a bigger piece of the pie for workers (perhaps we should call them makers or producers), rather than giving it to people who already have money. We can moan and complain about this simple fact from all political angles, but until we start electing people who understand how this works, our long slow decline will continue.

TomMckenny4• 7 years ago

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.

Gpetrium2• 7 years ago

I think one of the biggest concerns that governments are having is that the more you try to re-balance wage stagnation and wealth, the less competitive you are in the world, leading to other types of stagnation.

TomMckenny4• 7 years ago

Intuitively this seems quite reasonable.

Yet the period 1946-1973 saw enormous growth in all western countries and wages kept up with growth during that time.

Of course, it seems likely there are government interventions that damage growth. But apparently there are some that don't. In particular, progressive tax structures and social safety nets don't seem to.

choeger• 7 years ago

When did China enter the global market? Am I the only one to think that this might be a natural cause of an extreme growth in world-wide working population? I think we are already through the worst parts and the dividends are beginning to pay.

RPLong2• 7 years ago

I have thought that for a long time, too. It's natural that, on a global scale, developed-economy wages would appear to "stagnate" if developing-economy wages are increasing while competing for the same jobs.

simonsarris• 7 years ago

Hmm. If the ngram "Chinese manufacturing" started exploding in books in the mid 80's we can assume the phenomenon started exploding a few years before that.

https://books.google.com/ngrams/graph?content=Chinese+manufa...

jahewson2• 7 years ago

Early 1970s. Nixon visited China in 1972. Don't forget that China had to industrialize first - it was initially importing equipment from the US. Imports into the US at the time were more likely to come from Japan, Taiwan and Korea. Seems a to be a bit too late to explain the timeline, but it could be a factor - OTOH, given that China's workforce is no longer expanding then your theory would predict that wages will now stop stagnating but that does not seem to be the case?

api• 7 years ago

This is really great!

I have to toss something in re: unionization and the percentage it may explain.

Executive salaries have exploded while worker salaries have stagnated. Could this be because executives by virtue of the social networks they belong to are effectively unionized? Unionization of executives is not necessarily explicit, but the executive pool is smaller and more tightly connected and therefore executives will tend to behave more like a coherent social group. The worker pool is enormous, more diverse, and far less organized with far less opportunity for "out-of-band" social connection.

BrandonMarc• 7 years ago

Aaaah, scott! So much information! It's a long read, and I have work to do, but ... is there a summary?

andrewla2• 7 years ago

The problem with this entire discussion is that we use terms like "wages" and "productivity", which have meanings in the English language, and associate them with metrics which are utterly divorced from those meanings. To have a sane discussion, we're forced to use these shorthands, but the fact of the matter is that if we spelled out what we were actually measuring it would be very clear that all of these phenomena being measured refer to things disconnected from any of our actual experience.

Even more so, the methodology for most of this data has changed so much over time, with so little overlap between methodologies, that we have literally no idea what the state of the world was even a few years ago. All we have are a mixture of giant measurement artifacts, and when two of them correlate we celebrate because we might have found a metric that can bridge the divide between methodologies, but that correspondence disappears as soon as we try to find out if there are systemic changes -- our ability to determine whether something has changed has an implicit reliance on the assumption that nothing has changed, so all of these arguments become circular.

Econometrics is a philosophical dead end that just ends up producing broken policies disconnected from reality and causing us to make up a new suite of politically-motivated metrics to match the outcomes that we're looking for, and then give the metrics names that refer to things that have intuitive meanings and pretend we've found insight.

You really have to go back to non-econometric-based economics (the Austrians, von Mises and Hayek) to get any sort of insight into how economies can be made to work at scale, and the answer is that we don't understand them, and that technological progress and population changes mean that attempts to push them in a direction will have side effects that far outweigh any of the attempted influence.

roymurdock2• 7 years ago

This isn’t true, the study of applied economics (new Keynsian) saved the US in 2008 when the Fed decided to shore up liquidity and helped bail out industry in concert with the government. Austrian policy would’ve let the entire system collapse and rebuild itself to avoid the construction of perverse risk incentives and the zombification we are seeing in the economy today. You can argue which would be better long term (I think Austrian) but short term we needed Keynesian measures to save jobs and lives from being consumed in a downward spiral of debt chain triggering and collection.

Productivity has a precise economic definition - ratio of output to inputs - and correlates highly to standard of living. We don’t fully understand how and why technology advances, but we measure increased technology through a variable called the solow residual. Economic policy can help lead to technology breakthroughs that increase productivity and the standard of living. It’s very shortsighted to dismiss economics out of hand as something we don’t understand. A lot of it is politically motivated but let’s face it politics is what happens when groups of people get together and try to collaborate. There’s a lot of important work to be done around productivity economics and I’m glad it’s getting more mainstream coverage

andrewla2• 7 years ago

saved the US in 2008

I could not disagree more strongly on this. First, objectively, we have no basis for saying whether or not the actions taken actually helped anything, because we have no control of any sort. All we have are theoretical models, which, I cannot stress enough, were absolutely useless in predicting the crisis in the first place, which, while not disproving their effectiveness, should at least give us pause. How many times can a model be wrong and "on-the-other-handed" before we admit that it is garbage?

Long-term it sounds like we're not in disagreement, but the short-term aspect I also find unconvincing. We still lost the jobs. People still fell down into debt spirals, specifically because the capital infusion allowed the banks to not reprice their mortgages, which is the only sensible way that they could have had any sort of business continuity; to take the write-down on the property values and allowing people to keep paying down the repriced debt rather than pushing things further down the cliff by forcing people to enter foreclosure and thus further depress the housing market.

Subjectively, we saved a couple of giant banks (and an insurance company) that collectively had taken on so much risk exposure that it dwarfed the total income that those institutions had made over their lifetime. Those were the institutions that most needed to go into receivership, to be broken into pieces and sold to smaller banks that had been more prudent with their investments. That process already existed in law and needed no special handling; Sheila Bair and the FDIC were ready and willing to do the right thing. Instead we end up with TARP and the ridiculous avoidance of actually relieving troubled assets, instead just giving a ton of money to the worst possible actors, and then fudging the balance sheet to look like we made a profit on the deal. The whole thing stinks and is morally repugnant and sets up all sorts of perverse incentives.

Okay, that's enough of the initial rant, and I apologize if it seems like I'm lashing out at your reply, which actually was well-balanced.

Productivity does have a precise economic definition, but it is not the colloquial one, and regardless, it is absolutely impossible to measure in any meaningful sense; all we can do is use statistical tricks with existing data to attempt to estimate it, but those estimators do not remain stable over time because the underlying metrics rarely have the longevity to serve back a few more years.

It's a rabbit hole I heartily recommend -- find an estimate of "productivity" and dig down to what it is actually measuring, and then see if those metrics can be compared to metrics from the past. If someone wants to take that on and reply to this, I'm happy to see the analysis; I haven't done it yet for this particular metric, but I've become familiar with the picture; colloquial term to "precise" economic definition, the methodology for estimating it as a point estimate based on other metrics whose provenance is dubious and which themselves have methodological issues that defy our ability to measure them over time (i.e. often devolving to self-reported data or tax data or labor that is subject to changes year over year; the changes in reporting requirements alone make the data useless). If we dug down and talked about the actual metric that we're talking about when we say "productivity" then it would be rapidly apparent that we're talking in circles.

soVeryTired3• 7 years ago

Productivity has a precise economic definition - ratio of output to inputs - and correlates highly to standard of living. We don’t fully understand how and why technology advances, but we measure increased technology through a variable called the solow residual.

What happens when you can't measure the outputs? What's the total value added by the financial sector? Or the legal sector for that matter? If I invent an inexpensive cure for a disease that renders expensive medicines obsolete, has productivity gone up or down?

Regarding the Solow residual, you certainly can put income on one side of a regression, and estimates of labour and capital on the other side, and set them equal using a residual term. I don't think you can convincingly argue to anyone besides an undergrad economist that the residual represents technology though. Don't think too hard about what the units of that residual are...

wazoox• 7 years ago

Because of energy. Productivity going up means one person uses more machines, and as time goes, the machines do an ever increasing part of the job, because the energy feeding the machines is so much cheaper than human labour (in the order of 200 to 400 times cheaper).

This is not by chance that wage stagnation appeared in correlation with these events: US oil production peaked in 1970. Dollar convertibility to gold ended in 1971. Oil crisis came in 1974. OECD countries enter a permanent trend of public deficit in 1974. Unemployment soared in OECD countries at the same time.

As the ability to augment energy consumption became more and more capped by the ability to extract energy from the ground, workers gradually lost their capacity to obtain their part of the cake because it's always cheaper to put more capital than people at work, so far. The trend intensifies, nowadays we're talking of ending employment and of the necessity of basic income and similar tools.

Until the (unavoidable) end of cheap energy, that is... Then we'll be back to the ancient order of things, when a country GDP was entirely correlated to the size of its population.

omouse• 7 years ago

I wonder if there's an impact from the increase in startups? Since most early employees are getting paid in equity rather than real dollars wouldn't there be a stagnation for a few years until the equity is transformed into cash?

Also any conversation about wage stagnation has to take into account collusion, in recent years Google, Intel, Adobe and others were avoiding poaching each other's employees.

amanaplanacanal• 7 years ago

Of course, if this continues long enough...

At some point the workers rebel, and bring back the guillotine. Or something worse (see Soviet Russia). This can't continue long term.

Populist politicians promising to make things better relieve some of the pressure in the short run, though.

Wage Stagnation

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