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The great wage stagnation: tech is the problem
zakkiel
Registered User regular
Registered User regular
So we all know that median wages have been stagnant or declining since 1999 in the US, and we're now back to the 1980s. Meanwhile, Europe is returning to the days of inherited wealth as a dominant source of income, and Japan appears locked in a permanent cycle of contraction and deflation. All these trends are old enough now to be more than temporary market blips. Economists have different opinions about why these things are happening. I think the right answer is the obvious one: wages in developed countries are falling because the supply of labor exceeds demand. And the reason for that is the tech-driven growth in productivity, meaning that falling wages will get worse pretty much indefinitely.
The reason a lot of economists resist this view is that for a long time it's been demonstrably wrong. As technology eliminated some jobs it provided newer, better-paying jobs. But I think this is pretty shoddy reasoning. Economics is the study of conditions that have never existed before, and so economists who lean to heavily on the past will go terribly and repeatedly wrong. When Malthus issued his dire predictions about population growth, he was saying something that had been true for all of human history up to that point. It just turned out that the Industrial Revolution was unique in human history. When Marx predicted that capitalism would lead to an unbounded, unsustainable concentration of wealth, he was applying the lessons of the Industrial Revolution up to that point - it's only after he started writing that working class wages began the long climb that we now think is natural and inevitable. And when optimists today tell us that the jobs lost to technology will be replaced with better jobs because that's been true for the last 150 years, we should be pretty skeptical, because at the bottom it doesn't make sense. In a world of infinite "productivity," where you have robots building other robots designed by computers, the value of human labor isn't infinity - it's zero. Someone in that world is either born fantastically wealthy thanks to inheritance, or they spend their lives living on the sufferance of the ultrarich (if at all).
Obviously we're unlikely to reach that extreme limit, certainly no time soon. But we don't have to. We just have to reach the point where the global supply of labor ceases to be a major limiting factor on global consumption. And it looks like we're at that point. The office workers displaced by computers are simply gone. Ditto the manufacturing jobs taken over by robots. It's probably going to take some time for pilots, drivers, and radiologists to disappear, but I wouldn't bet on those jobs existing a generation from now.
If so, the general population is probably screwed. It turns out that Karl Marx was basically right about the problems of capitalism, but his proposed solutions are worse than the problem. In the median term we face a cycle of quasi-boom (when the wealthy, desperate for viable investment opportunities, make dubious loans to the not-so-wealthy) and devastating bust (when those loans go predictably bad). Our only choice is to grab as much of the pie as we can while it's still there for the getting. Which is why I'm excited to bring you this unique opportunity to be a founding member of the PA D&D Investment Bank. Our motto: "Scrooge was onto something". Join now!
The reason a lot of economists resist this view is that for a long time it's been demonstrably wrong. As technology eliminated some jobs it provided newer, better-paying jobs. But I think this is pretty shoddy reasoning. Economics is the study of conditions that have never existed before, and so economists who lean to heavily on the past will go terribly and repeatedly wrong. When Malthus issued his dire predictions about population growth, he was saying something that had been true for all of human history up to that point. It just turned out that the Industrial Revolution was unique in human history. When Marx predicted that capitalism would lead to an unbounded, unsustainable concentration of wealth, he was applying the lessons of the Industrial Revolution up to that point - it's only after he started writing that working class wages began the long climb that we now think is natural and inevitable. And when optimists today tell us that the jobs lost to technology will be replaced with better jobs because that's been true for the last 150 years, we should be pretty skeptical, because at the bottom it doesn't make sense. In a world of infinite "productivity," where you have robots building other robots designed by computers, the value of human labor isn't infinity - it's zero. Someone in that world is either born fantastically wealthy thanks to inheritance, or they spend their lives living on the sufferance of the ultrarich (if at all).
Obviously we're unlikely to reach that extreme limit, certainly no time soon. But we don't have to. We just have to reach the point where the global supply of labor ceases to be a major limiting factor on global consumption. And it looks like we're at that point. The office workers displaced by computers are simply gone. Ditto the manufacturing jobs taken over by robots. It's probably going to take some time for pilots, drivers, and radiologists to disappear, but I wouldn't bet on those jobs existing a generation from now.
If so, the general population is probably screwed. It turns out that Karl Marx was basically right about the problems of capitalism, but his proposed solutions are worse than the problem. In the median term we face a cycle of quasi-boom (when the wealthy, desperate for viable investment opportunities, make dubious loans to the not-so-wealthy) and devastating bust (when those loans go predictably bad). Our only choice is to grab as much of the pie as we can while it's still there for the getting. Which is why I'm excited to bring you this unique opportunity to be a founding member of the PA D&D Investment Bank. Our motto: "Scrooge was onto something". Join now!
Account not recoverable. So long.
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On a more serious note, humanity will have a chance to move towards a post scarcity utopia but knowing us it will go the other way.
Socialist policies allow for that wealth to be distributed.
Failure to institute such policy creates cash to stop moving.
This causes stagnation.
This stagnation is combated by inflationary monitary policy. Which leads to redistribution of wealth.
Or austerity measures, which we are seeing, tend to destabilize governments. Which... shrug... who knows.
I mean I'm overly focused on it, but there are infinite questions in the sciences that we could use a couple million hands to figure out. Not skilled hands, either, just people who can work. We just also don't place a very high value on work in the sciences that won't produce a marketable product as soon as possible.
I mean also we should be working like 4 hour days 4 days a week.
You will give me your security clearance, Mr. Bond.
*Laser beam cannon pointed at crotch.*
I think the major issue is that we are not headed for a post-scarcity utopia. Resources (land, arable topsoil, minerals) become more scarce while labor becomes more abundant. That means people who work for a living have less and less trading power for those resources and the things made with them.
I think short term we can definitely improve the situation by ending salaried work (so everything must be paid hourly), reducing the full-time work week, and introducing mandatory vacation and parental leave (in the US). But in the long run raising the cost of labor just increases the incentive to move work to countries with less expensive labor, and ultimately to robots. I think the best medium-term solution is massive government employment in infrastructure, and possibly in moonshot projects. Space exploration used to employ a lot of people. No reason we couldn't employ even more to build space fountains or what have you.
One of the side effects of increasing wealth concentration is increasing regulatory (and legislative) capture. Notice how investment banks are steadily whittling away at Dodd-Franken. I don't have a lot of faith that we can sustain the regulation necessary to prevent the next crash. Europe is even worse.
What if I told you there was a place where wage growth has been averaging over 6% for a decade, sometimes as high as 10%. This place, some tiny tax-shelter country like Ireland, or Luxumberg, with only a couple million people in it?
No, it's called Asia, and has 4.5 billion people living in it, that is 65% of the world. Talking about wage stagnation as some sort of indictment of capitalism is silly, when probably 70+% of the world-Brazil, some African countries, etc- is experiencing the exact opposite phenomena.
Yeah, BRIC growth is amazing percentagewise because they're playing catch up. You saw a similar dynamic with the USSR back in the 20a-30s.
Yes you're right that it isn't an issue in developing countries. It very much is an issue in most first world nations.
Actually, it's both, because they're conjoined so much that we could sell them to a sideshow. One of the things that hampered the recovery in the US was loss of local/state government jobs, thanks to idiotic austerity policies at those levels.
it's not just catch-up. they're getting the unskilled and semi-skilled labor-heavy industries that are still too expensive to fully automate from the slightly-higher-standard-of-living countries.
maybe as they industrialize, some other, cheaper pool of labor will come available to take those industries but in all likelihood by that time they'll go the way of full automation with a few highly-skilled directors and operators.
there can be two problems.
the bottom has fallen out of the unskilled and semi-skilled labor pools in the developed world. sure, generous social spending might take the edge off of this, but in previous decades these people could have expected to be able to take care of themselves and their families.
It's a potentially good idea that would never fly in the U.S. right now for being the most socialist socialism propagated by socialists.
ultimately we'll need to end up somewhere like this
in the meantime, though, it's a tough pull when you do the math on tax rates and expenditures, especially since modern governments are super-against nationalizing resources or industries and industries have become so mobile.
I prefer to think of any potential problems as employment opportunities.
Actually, I think the picture is even grimmer if you include the really undeveloped countries. Many Oceanians are so desperate for work that they wind up essentially - or literally- enslaved in foreign countries. Of course there are large areas where wages are growing, because wages there are still cheap enough to make automating away those jobs more expensive than paying workers. Eventually they, too, will hit that ceiling.
The other problem is stuff still needs to get done.
There's no one else. People have to do stuff. If you tell everyone "OK you don't have to do anything and you can still live fine" then people aren't going to work hard. And the jobs that need to get done are generally the hard jobs - that's the issue. All the easy jobs are basically gone. The jobs that can't easily be automated require an education/skill set, social interactions (debatable) or are ad hoc enough that automating it wouldn't be worth it.
But someone has to actually decide what the tech does. And someone has to make the tech and design the tech and ship the stuff the tech makes and sell you stuff. And those jobs either require hard work to gain the skill necessary to do the jobs and/or hard work to actually show up and do the job. If you make the delta between Basic Income and studying hard for 4 years followed by a stressful and challenging work too small, it won't make sense to put yourself through that. And it won't get done and then there's nothing to supply basic income.
Then you have insufficient economic production to support the population and you're fucked. And/or you have huge segments of the population with insufficient structure. Jobs and families are extremely good not only because they are productive and produce support structures (and more people), but also because they promote stability. We don't want people not working. That's bad even if they produced nothing.
At the very least you'd need to make the quality of life on a Basic Income vaguely shitty, both because its cheaper and to encourage people to work. But then you're basically making it so the whole thing is inferior to a standard social safety net. Unless you want to start assigning jobs based on ability and that doesn't work.
QEDMF xbl: PantsB G+
That's not what structural unemployment means. That's just austerity.
--
If you're talking about the Great Recession, austerity has greatly hampered recovery. But if you're taking a decades-long view, stagnating wages are the result of labor practices (the slow death of unionization for one) and taxation policies, not technological advance.
The fact is that we are nowhere near the point where we have to worry about a workforce that has been permanently replaced by machines. It was a bad argument when the Luddites made it, and it was a bad argument when the internet arose, and it will continue to be a bad argument until the singularity. The curve you describe, ending in zero necessary workers, does not describe a linear relationship, it describes an exponential one. The economic woes of the past decade and of the past three or four decades have other causes.
The Industrial Revolution was the ultimate in tech increasing productivity. It did not result in wage deflation.
Rather the problem is corporations feel a smaller and smaller share of revenue should go to labor and no longer link productivity with wages in any fashion.
If we were simply losing jobs to technology in an organic fashion then inflation and wages should be roughly independent variables and we should see a strong drop in the labor participation rate. Instead we've seen the two variables are fairly closely linked and labor participation has increased.
Furthermore productivity hasn't really been increasing substantially faster since the change in pattern in the early 70s, with an exception perhaps of the late 90s during which there was a concurrent uptick in wages.
The labor participation rate is down recently (largely due to demographics as the Boomers retire), but a higher percentage of people are working now than were in 1960s. If anything too many people are currently working, which indicates the problem isn't a lack of jobs.
We don't lack jobs. That's not the issue. A higher percentage of Americans are working now than did in 1960. And they are better educated. And more productive. The problem is that some time between the 1970s and 1980s they stopped getting paid more as productivity went up. That's cultural/societal more than economic/technological.
It is very weird to see optimism mocked followed by a casual prediction of the magical death of scarcity not only of resources but of labor. Or the idea that economic value has any definition in such a society. If labor is worth nothing and there's infinite productivity, wealth would similarly be worthless.
QEDMF xbl: PantsB G+
Fundamental misunderstanding of "debt".
Pundits and politicians are punting the very complicated and complex area of national economics and federal finance right to the populace, a group of people who rightly don't understand the shit because most people who are in the field don't understand the shit completely, and it has to exist as a hivemind sort of field.
Basically, those in power are using the stupidity of the American electorate to push issues against people who know better.
And yet there are so many various professions where we as a society are happy to believe the opposite. But apply that logic to tech, and it suddenly fails?
I blame Art Laffer and his fucking curve.
There's a good sociological reason for a 90‰ top tax bracket.
It's because you're jealous of their success.
That IS the go-to response to this, if I'm not mistaken.
I must be misunderstanding you here. It sounds like the alternate explanation you're advancing is that corporations today just don't feel as generous as those of forty years ago. I guess we could replace the whole of economic history with a history of corporate personalities, but I find a simpler explanation more compelling: corporations pay less because they don't have to pay as much, or: the market value of labor has diminished because the supply is increasing faster than demand.
Except that your charts tell the opposite story! Productivity is continuing to increase, while labor force participation rates peaked around 99 and have been consistently falling since.
So? There is a threshold productivity beyond which increasing productivity results in decreasing wages. We know such a threshold must exist by simple logic. Whether you pass that threshhold linearly or exponentially or logarithmically is irrelevant. The only argument is whether we have passed that threshold now. I argue that the labor trends of the last several decades in developed economies strongly suggest that we have indeed passed that threshold.
That is the nature of peaking labor force participation rate: you start matching the participation rates of the more and more distant past. I'm not sure what you mean by "too many" people working. More people have to work because wages are falling, and wages are falling because too many people want to work. If the issue really were Baby Boomers retiring we should see wages rising as employers compete for a smaller pool of workers, and we definitely shouldn't see almost all the drop in participation occurring among younger workers.
I don't think you understood what I was saying. At all.
Let me put it a different way. If the world's supply of gold were growing like P(t)*R*t with P the world population, any sane economist would predict that the price of gold would eventually start falling and continue falling indefinitely. Why do you believe that labor is simply immune to the laws governing other resources?
Labor prices are poorly elastic: everybody needs to eat and pay rent, so relatively few people will drop out of the workforce in response to diminished real or nominal wages. Elasticity is higher among people for whom unemployment is a viable option (youth and the elderly, for instance).
Wages are very sticky. To illustrate, if I'm on a team of 5 people, my coworker retires, and nobody is hired to replace him, I don't get a 20% raise just because there is 20% less labor supply. (Technically, it would be a 25% raise, but that was less satisfying rhetorically.) If a company needs a new worker, they don't just keep raising the offered salary until somebody signs on - if they can't get a worker at a salary range near the local median for that job, they'll just keep the job posting open and hope eventually they get lucky. (See: any one of the myriad articles we've posted about the myth of the skills gap over the last couple of years.)
Consequently, it is easy for supply and demand price variations to be drowned out by other social and political factors.
The narrative here is (or should be) intuitive. Workers in most fields have poor ability to negotiate, which means wages will naturally stagnate unless we institute some other institution or law to promote them, such as unions or minimum wages.
Speaking of which...
Labor union membership has been steadily decreasing. Minimum wage hasn't kept in step with inflation.
PantsB is fundamentally right: wages stagnation is a social & political issue. We haven't maintained the social and political motivation to keep wages up for the majority of workers.
the "no true scotch man" fallacy.
Honestly, I find it very weird to explain a broad, systematic fall in labor participation AND wages in developed countries in terms of one country's minimum wage or unionization. It sounds a bit pet-projecty, like Republicans explaining everything in terms of excessive regulation and tax burdens.
the industrial revolution didn't result in deflation of because it created entire industries where nothing existed before. for all of human history the vast majority of people farmed. It didn't necessarily make things efficient so much as it shifted a massive amount of the population in jobs that didn't exist before. The jobs were highly concentrated, reasonably well paying, and could be done by men and women who before could pretty much only farm.
I really don't anticipate something like that happening again. what we're seeing now is not an industrial revolution.
I think tech is sort of a problem but it's not the only problem. we're also seeing a pretty alarming concentration of wealth which I think we haven't seen since the gilded age. and maybe a return of deference of regulators and the government to large, very powerful private companies.
And yet, Germany has managed to protect wages via the mechanism of a strong social safety net and strong unions. What you are suggesting is an economic truism is actually a failure of public policy due to the advent of right wing politics in the late 20th century in the Anglo-Saxon world that coincides with efforts to open of global labor markets. It's not repeated globally and, in fact, has strong similarities to state of the world in the early 20th century.
I've read Picketty, too. The essence of his solutions are basically a return to mid-20th century-style labor market regulation and a global effort to tax investments and other instruments designed to allow the accumulation of vast amounts of wealth.
Incidentally, the first era of free trade fell apart when the "losers", nations who did not have access to a cheap supply of colonial labor and natural resources - i.e. Germany in the First World War and Germany and Japan in the Second - realized that the laws of economics could be circumvented with military force. I'm really hoping that's not the story of the 21st century.
I also find it ironic that economists' position in the media and political world are a legacy of the work done by John Maynard Keynes at the end of the Second World War. His superstar status and global economic framework provided a veneer of legitimacy to the profession that later conservative economists traded on heavily to promote ideas that have worked out poorly for the world.