Labor's Declining Share

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  1. Don W profile image83
    Don Wposted 5 weeks ago

    https://hubstatic.com/14485607.jpg

    "Between 1979 and 2007 the annual earnings of the top 1 percent grew 156 percent, while the remainder of the top 10 percent had earnings grow by 45 percent"(1).

    "Productivity in the economy grew by 80.4 percent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 percent, and nearly all of that growth occurred in a short window in the late 1990s. The pattern was very different from 1948 to 1973, when the hourly compensation of a typical worker grew in tandem with productivity."(2)

    What kind of impact do you think that type of imbalance has on society?

    What's a "fair" wage? Is it relative to the amount of profit a company makes?

    (1) https://www.epi.org/files/2012/ib330-pr … :45:37.pdf (p.6)
    (2) Ibid (p.7)

    1. wilderness profile image96
      wildernessposted 5 weeks agoin reply to this

      ""Productivity in the economy grew by 80.4 percent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 percent, and nearly all of that growth occurred in a short window in the late 1990s."

      What was the cause of that increase in productivity?  Was it more hours worked?  Was it higher skills/education of the worker?  Or was it because someone else provided more/better equipment to work with - things like better tools, computers, equipment?

      "What's a "fair" wage?"

      It certainly is not something set by political hacks in an effort to give more wealth to those that don't produce it.  It can only be whatever the free market assigns; when competition and freely entered into agreements sets the price it is "fair" regardless of what the politicians think.  In this regard labor is no different than any other product; what is "fair" is what is acceptable to seller and buyer.

      1. Don W profile image83
        Don Wposted 5 weeks agoin reply to this

        You seem to be asking what contribution workers made to the increased productivity and profits. The implication being that what people get out of a company (their pay) should reflect what they put in (their contribution to the company's productivity and profits). I would have no issue with that if the same principle were applied equally.

        It isn't.

        In 1965 the CEO-to-worker pay ratio was 20:1. So CEOs earned on average 20 times more than the average worker(2).

        In 2016, the CEO-to-worker pay ratio was 271:1 with CEOs now being paid on average 271 times more than average workers:

        https://imagesvc.timeincapp.com/v3/mm/image?url=https%3A%2F%2Ffortunedotcom.files.wordpress.com%2F2017%2F07%2Fceo-compensation-ratio-2016.png&w=1100&q=85(1)

        In terms of pay rises this means:

        "Since 1978, and adjusted for inflation, American workers have seen an 11.2 percent increase in compensation. During that same period, CEO’s have seen a 937 percent increase in earnings"(2)(my emphasis).

        My question is, do CEOs now contribute 937 percent more, on average, than they used to, and 937 percent more on average to company profits, than the average worker? If so, I'd love to see evidence of that.

        Perhaps the disparity between CEO and worker compensation is merely the result of the market. Or perhaps not:

        ". . . CEO compensation growth does not simply reflect the increased value of highly paid professionals in a competitive race for skills (the “market for talent”), but rather reflects the presence of substantial “economic rents” embedded in executive pay (meaning that CEO pay does not reflect greater productivity of executives but rather the power of CEOs to extract concessions)"(3).

        This seems to fit your idea of a "fair" wage being a "freely entered into agreement" based on "what is acceptable to seller and buyer". Problem is, something that is freely agreed to is not  necessarily fair. Those are different things.

        And if "fair" is tied to whatever people are willing to accept, then that means getting a "fair" wage is dependent on the ability to "extract concessions" from an employer.

        What mechanism is there for an ordinary worker to negotiate concessions from an employer wilderness, in a way that may not be able to do by themselves?

        (1) http://fortune.com/2017/07/20/ceo-pay-ratio-2016/
        (2) https://www.epi.org/files/pdf/130354.pdf (p.1)
        (3) ibid (p.4)

        1. wilderness profile image96
          wildernessposted 5 weeks agoin reply to this

          "Problem is, something that is freely agreed to is not  necessarily fair. Those are different things."

          And a comittee buried in the bowels of congress DOES know what is "fair"?  When the decision is based, not on contribution or market value, but solely on what one party needs?  I think not.

          But I WILL say you make a good case for the excess profit from increased production go straight to investors rather than any employee.

          "What mechanism is there for an ordinary worker to negotiate concessions from an employer wilderness, in a way that may not be able to do by themselves?"

          Do you not mean for force concessions rather than negotiate?  For they have exactly the same mechanism for negotiating a concession as the employer does - refuse the contract.  Walk away and find someone else to negotiate with.

          1. Ken Burgess profile image90
            Ken Burgessposted 4 weeks agoin reply to this

            What is amusing here, is Don's blindness to the fact that it is the corruption embedded into D.C. politics that has allowed this to happen.

            He thinks politicians in D.C. will fix it, in particular he thinks the Socialists gaining control of the Democratic Party will fix it.

            They of course would do the opposite, their socialist programs would enslave Americans and destroy the Nation's economy.  The harm they could do at a time when we have China ready and willing to step into the vacuum caused by America's decline would be irreversible.

            Once America abdicates its position on the global stage as the world's reserve economy, and most powerful economy, it would be lights out for the 'American Dream' and its citizens would be no better off than those in Greece or Venezuela.

            The reason why wages are so low and yet the fat cats on Wall St. get so much, is because of NAFTA, open borders, H1 +H2 visa programs, etc. etc. which allow corporations to fire American citizens and replace them with foreign workers who work for far less.  That allow corporations to build their factories in China or Mexico where the workers have no rights and work for far less... this is what globalism brings Americans, lower wages, less rights, and less support.

            1. Don W profile image83
              Don Wposted 4 weeks agoin reply to this

              Your comments about immigrant labor do not explain why there is a global decline in the labor share of income across advanced, emerging and developing economies, and across all industries:

              https://blogs.imf.org/wp-content/uploads/2017/04/imf-weochap3-apr2017_chart1.jpg

              It also doesn't take account of the impact of technology (specifically automation) that wilderness alluded to in his first comment.

              Increased global economic integration is certainly likely to be a factor, but we can't bury our head in the sand, pretend we don't live in a technologically advanced age, or operate in a global market. It isn't 1955 any more. We need policies that get to grips with reality, not policies that cling to fantasies.

              I agree policymakers have failed (and continue to fail) to address the issues, but for different reasons. There is evidence, for example, that addressing income inequality is important for GDP growth:

              "Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels".

              In the last few decades "trickle down" policies have essentially redistributed wealth from the least wealthy to the most wealthy. The disparity between CEO pay and worker pay is one aspect of that. It's not likely to get better any time soon.

              We may even get to a point where manual labor, for example, simply isn't a viable "product" any more. In that scenario what does society do with those who don't have the ability to upskill? I think we're a long way from that, but it's something we need to think about. On that basis alone, we can see that the current situation just isn't sustainable.

              1. wilderness profile image96
                wildernessposted 4 weeks agoin reply to this

                "In that scenario what does society do with those who don't have the ability to upskill?"

                This seems to be one of the larger disagreements I see.  The liberal view appears to be that our people are either physically or mentally incapable of improving themselves with another skill; most conservatives think of the vast majority of our neighbors as quite capable of supporting themselves, including the ability to "upskill".  I know which side of the fence I'm on - what about you?  Are your neighbors and friends incapable of learning something new?  Are they, as a group, incapable of supporting themselves by doing anything productive enough to trade for that support?

                1. Don W profile image83
                  Don Wposted 4 weeks agoin reply to this

                  Acknowledging the fact that some people will not be able to transition from manual labor jobs, is not in anyway the same as suggesting the "vast majority" of my neighbours are "physically or mentally incapable of improving themselves" and "incapable of learning something new".

                  If you want to keep responding to The Liberal™ in your head, that's fine, but let me know so I can leave you to it.

                  If not, then the main point from my reply to the previous comment was that factual information indicates the current decline in labor share of profits, is a global phenomenon affecting advanced, emerging and developing economies alike, and income inequality is a significant factor.

                  The simple fact is, an increasing amount of wealth is being redistributed from the least wealthy to the most wealthy, and has been for a number of decades. This is partly due to the amount of economic, legal, and political power corporate entities have grabbed (and been given) over the last few decades.

                  If you follow the factual information wilderness (as I am wont to do) the more corporate entities have spent on lobbying in Congress, for example, the more political power they have accumulated, and the more wealth has been redistributed from the least to the most wealthy.

          2. Don W profile image83
            Don Wposted 4 weeks agoin reply to this

            Either point out where I said "fair" must be defined by a committee and a party in Congress, or stop falsely attributing ideas to me. If you're not sure what my position is, you can always ask. I have no qualms expressing an opinion.

            You implied employees' pay should be tied to their contribution to a company's productivity and profits. I pointed out I would have no issue with that principle, if it were applied equitably.

            I then pointed out CEO pay has increased 937% in the last few decades, while the pay of ordinary workers has increased 11.2%. And asked, are CEOs really contributing 937% more to companies than they used to? Are they wilderness?

            If not, then CEO pay growth is not based on contributions to productivity and profit. In fact, evidence suggests CEO pay is based on the ability of CEOs to "extract concessions" from employers, rather than increased CEO contributions.

            So are you suggesting worker pay should be based on contributions to a company, but CEO pay should be based on whatever CEOs can wring out of it the company regardless of their contribution? If so, why?

            And your claim that ordinary workers have the same mechanisms available as employers, takes no account of the gap in political, economic, legal and coercive power between a corporate entity and an individual worker. How many ordinary workers can afford to buy members of Congress to ensure laws are favorable to them for example?

            Factual information tells us that corporate profits and CEO pay has soared, while pay for ordinary workers has stayed relatively static in the last few decades. There is evidence to suggest this is partly because it's harder for ordinary workers to extract concessions from employers than it is for CEOs. So what impact do you think that type of imbalance might be having on society? And do you think it's sustainable for the future?

            And again this raises the question, what is "fair" pay? Your suggestion that fair means "freely agreed" doesn't work. What does "freely agreed" mean when there is an imbalance of coercive power?

            When accepting/refusing a contract may be the difference between eating or not eating for a worker, can we say the terms of the contract have been "freely agreed"? And if we say that pay is dependent on the ability to extract concessions, then that means pay is dependent on power, not merit. If ordinary workers don't have the freedom to refuse a contract without placing themselves and their families survival in jeopardy, then what power do ordinary workers have to extract concessions?

            1. wilderness profile image96
              wildernessposted 4 weeks agoin reply to this

              "Either point out where I said "fair" must be defined by a committee and a party in Congress, or stop falsely attributing ideas to me."

              Perhaps I read you wrong, but if it isn't a committee in Wash determining what "fair" is, what is it (or should be) in your opinion?  The worker, setting his/her own wage? 

              "And asked, are CEOs really contributing 937% more to companies than they used to?"

              Truthfully, I don't know.  Has corporate income increased that much?  Or has the competition gotten that much worse for CEO's?

              "If not, then CEO pay growth is not based on contributions to productivity and profit."

              Based?  Probably not.  But based on market price, with a look towards expected returns?  Almost certainly, although I'm also sure that some CEO's hold their position because their parent did.

              "Your suggestion that fair means "freely agreed" doesn't work. "

              Why not?  Because some companies won't pay what the worker wants? 

              "When accepting/refusing a contract may be the difference between eating or not eating for a worker, can we say the terms of the contract have been "freely agreed"?"

              Yes, we can.  But then we disagree that a person only has one employer to work for: I believe every able bodied person in the country has hundreds or thousands.  They may have to relocate, they may have to retrain, they may have to do a job they don't like, but no one is tied to a single employer.

    2. Ken Burgess profile image90
      Ken Burgessposted 5 weeks agoin reply to this

      Wonderful stats and topic.

      Why don't we ask ourselves, why, despite times when the Republicans and Democrats had total control of Congress and the Presidency, did that never veer off course?

      How is it, that wages stagnated, that the slow decline continued consistently for over a quarter century?

      NAFTA, the Glass Steagal Repeal, etc. etc. ever open borders and visa programs allowing in millions of workers who would work for far less than the American citizen no matter what field it was, from High Tech to Construction.

      It never seemed that Washington enacted anything that went well for the American populace... the ACA was not affordable nor was it better than what the majority of Americans had before getting it, yet Big Pharma and the Medical Industry thrived like never before once it got going.

      Only in the last couple of years has any positive change occured.

 
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