Home > Uncategorized > Changing the story to hide the problem

Changing the story to hide the problem

from David Ruccio

wage share

It’s obvious to anyone who looks at the numbers that the wage share of national income is historically low. And it’s been falling for decades now, since 1970.

Before that, during the short Golden Age of U.S. capitalism, the presumption was that the share of national income going to labor was and would remain relatively stable, hovering around 50 percent. But then it started to fall, and now (as of 2015) stands at 43 percent.

That’s a precipitous drop for a supposedly stable share of the total amount produced by workers, especially as productivity rose dramatically during that same period.

The question is, what has caused that decline in the labor share?

The latest story proffered by mainstream economists (such as David Autor and his coauthors) has to do with “superstar” firms:

From manufacturing to retailing, giant companies have managed to gobble up a larger and larger share of the market.

While such concentration has resulted in enormous profits for investors and owners of behemoths like Facebook, Google and Amazon, this type of “winner take most” competition may not be so good for workers as a whole. Over the last 30 years, their share of the total income kitty has been eroding. And the industries where concentration is the greatest is where labor’s share has dropped the most. . .

Think about the retail sector, where mom-and-pop stores once crowded the landscape. Now it is dominated by a handful of giants like Walmart, Target and Costco.

It is true, industry concentration has increased dramatically in recent decades (as I explain here). And the wage share has declined (as illustrated in the chart above).

Here’s the problem: exactly the opposite argument is the one that prevailed in the United States for the earlier period. Economists at the time argued that American workers earned a relatively high share of national income because they worked in concentrated industries, such as cars and steel. Thus, their collectively bargained wages included a portion of the “monopoly rents” captured by the firms within those industries.

Now that the wage share has clearly fallen, and shows no signs of returning to its previous levels, economists have changed their story. In their view, market concentration leads to a lower, not higher, wage share.

Why has there been such an about-face in economists’ story about the causes of the declining wage share?

What all the existing stories share is that they avoid identifying anything that has been done to workers as a class. Whether the story is about technological change, globalization, or now superstar firms, the idea is that there are larger forces that unwittingly have created winners and losers—and the losers, if they want, need to acquire the education and skills to join the winners. But don’t touch the basic elements of the economic system that has created such disparate and divergent outcomes.

As it turns out, the presumed rule of a stable wage share turns out to have been an illusion, an exceptional period of relatively short duration during which workers’ wages did in fact rise along with productivity. That wasn’t the case before, and it hasn’t been true since.

The actual rule, as it turns out, is that the wage share falls, as the rate of exploitation increases. That’s how capitalism works, at least much of the time—through periods of faster and slower technological change, higher or lower levels of globalization, more or less concentrated industries.

Sure, under a particular set of postwar conditions in the United States, for two and a half decades or so, the wage share remained relatively stable (and not without pitched battles between capital and labor, as Richard McIntyre and Michael Hillard have shown). But that ended decades ago, and since then workers have been forced to have the freedom to sell their ability to work under conditions that, even as productivity continued to grow, the wage share itself declined.

Mainstream economists have finally recognized the fact that workers’ share of national income has been failing. But they continue to formulate stories that deflect attention from the real problem, the relative immiseration of workers that has them falling further and further behind.

  1. Elisabeth L. Daley
    March 13, 2017 at 7:05 pm

    Demonization of labor unions and cultural promotion of neoliberalism and “free” markets, along with regulatory changes that have made it harder and harder to win union elections, have resulted in many fewer workers in labor unions. In the past, it was not just that employment was concentrated; it is that it was unionized. Where there was enough union density in a particular industry, union wages had the power to set industry-wide standards. If all the workers at Target, Walmart and Amazon were unionized and bargained collectively, I expect those workers would see a larger share of wealth for themselves and for workers at smaller retail establishments. Industry consolidation can make it much easier to set new standards through collective bargaining. The new on-demand workforce makes it incredibly hard to organize workers and thus harder to leverage a bigger share of the pie.

    • March 13, 2017 at 10:35 pm

      “If all the workers at Target, Walmart and Amazon were unionized and bargained collectively, I expect those workers would see a larger share of wealth for themselves”

      RE: Amazon – How do you unionize at a place where the median worker is gone in less than 5 years? Even in the high wage part of the company, 40% of the employees have been there 2 years or less.

  2. March 13, 2017 at 9:07 pm

    Autor’s reference to Costco prompts this comment. As far I know Costco is unionized, strongly so, and pays a wage-benefit package that people can live on. This may have recently changed, as I don’t keep up with them, but a decade ago I overheard a remarkable conversation between a union steward in one of the Costco stores and a regular employee. The steward said he had just that week witnessed the Costco CEO founder, James Sinegal, in a TV interview. Sinegal was asked about some advice he’d received recently from Wall Street. I paraphrase what he said, which was that he’d been advised for the sake of Costco stock to cut wages and raise prices. His response was remarkable: “we depend upon our workers and our customers for our existence. I’ll never make such cuts.” In my experience as a customer for about 20 years I’ve witnessed a well-organized place, a workplace that supports the employees and they evidently like their jobs so well they stay long-term. The very opposite is true at Walmart. I have no experience with Target.

    That said, I don’t like big box stores, pervasive and highly visible evidence of a runaway consumerism that will kill us all. I don’t like big corporations, especially the type now running rampant, the predatory corporation. I abhor monopoly as well in any sector. And I see a disturbing trend in a non-corporate institutional form that I used to support unconditionally, the consumer, wholesale, and producer coops, and credit unions. Of the latter, I’ve seen their democratically elected boards become coopted and decide to become a bank too many times. My PhD thesis was on agricultural producer coops. In my state at least two have become so large their behavior resembles a predatory corporation, and ordinary members have little to say about the matter; they’ve been taken over by a corporate mentality and lost their democratic souls.

  3. March 14, 2017 at 1:04 am

    Is the public getting more aware of the wages problem? I just noticed the economist is getting skewered in the comments section (now closed) on falling wages due to “productivity growth”.

    http://www.economist.com/news/briefing/21594264-previous-technological-innovation-has-always-delivered-more-long-run-employment-not-less

    A couple choice eviscerations:

    “Our parents had careers. We had jobs. Our kids have gigs, if they’re lucky. What a world!”

    “At some point in the distant future, robots will do all the work – if we are not robots ourselves by that time.
    Then, it is a question of time when a large part of humanity will not have jobs, and we might as well start thinking about how we can handle that now.
    To me the gospel that technology magically always will create about the same amount of new jobs that it displaces it just a delusion.
    We will have to change model.”

    “Its clearly time to start having a mature discussion about Citizen’s Basic Income.”

    “This article reflects one reason why I no longer read much of your material. While the issue is real, your blithe dimissal of the possiblity of addressing the growing wealth disparity isn’t even close to convincing and puts you in league with the ideologues of the right. Let’s be creative: we can do something about it, and I’m not just talking about coercive taxation.”

    I wonder if the economist editorial board reads the comments… This article was fairly centrist for the normally right-wing economist magazine and even in this article, readers who latch on to the most right-wing portion (the problem will somehow fix itself magically without us having to do anything) and criticize it are getting the most upvotes. I don’t think I would want to be them right now. Anyway, they seem to be at the point as the economists in this blog post. Correctly identifying the negative wage trend in society and building a narrative around it that defends the orthodox practice of ignoring inequality from a policy perspective. It is an interesting balancing act to watch.

  4. March 16, 2017 at 5:38 am

    In a private meeting with donors Paul Ryan made the statement that the USA could not afford to and should not guarantee medical coverage for Americans. It was, in Ryan’s words a matter of “principle.” Ryan also said he intended to assure Americans have freedom. something much more important than health care. This is long standing dispute in the US, about everything from healthcare to unemployment assistance to senior insurance. This fundamental division has existed from the outset – Jefferson and small independent farmers vs. Washington/Hamilton and the Federalist Papers. And this division is more than theoretical or philosophical. It’s at the center of distinctive cultures – work, religion, politics, violence, war, family, punishment, reward, the future, etc. The debate about work, wages, and fairness in these comments and in economics generally is just one concrete performance of the history of the USA. Peripheral changes in technology, skills, or even greater knowledge will not end this basic dispute or its consequences. If economists spent more time in the study of history and less with mathematics, they would understand this. But like ignorant children they focus on a few trees and miss the forest.

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