Why has so much power/influence left labor and gone to capital, at least in the US

[Wesley Clark]

I don't know much about economics (it has never stopped me from having opinions on the subject though), and don't know much about economies in foreign nations. Its one of the things I regret about college is not taking more economics and business coursework.

However in the US income inequality has grown drastically, and is now higher than many Latin American nations. And I assume that can happen because labor and capital come together and produce wealth, then that wealth is divided based on which side has the most power and influence to take what it can.

But virtually all the proceeds of increased wealth in the last 30 years have gone to capital. Which implies that labor has lost a lot of its clout. So why is that?

I can understand that increasing the labor pool reduces labor clout. You can do that via immigration (H1-B or illegal) or outsourcing. You can also reduce the standards of labor by hiring illegal immigrants (who aren't covered by labor law) or permatemps (who get lower wages and no benefits), all of which make labor accept lower wages and fewer benefits to compete with the larger pool of lower wage labor.

Combine that with union busting and there really is no way for labor to have any influence in how wealth is distributed.

But why isn't capital losing influence? Fareed Zakaria once said that decades ago people in India really liked learning about real estate tycoons like Donald Trump. But now India has its own billionaire tycoons. So does China, Mexico, Brazil, Russia, etc.

Shouldn't the fact that there are so many more wealthy individuals and corporations all competing for market share reduce income inequality? Shouldn't supply and demand mean they should be competing with each other, and accepting smaller profits in the process? Or does the fact that there is such a large untapped labor pool negate that?

In the past there was public unrest over too much power in the hands of too few. But that really isn't a problem now with union busting & a media/ideological agenda pushing that what is good for the wealthy is good for everyone. Nobody is going to strike or boycott if income inequality goes up. Nobody is going to push for confiscatory taxes to reduce income inequality (a 3% supply side tax hike to 40% was seen as too controversial to pass, nevermind something like the 91% income tax rates seen after WW2).

So basically it seems that supply/demand of labor and capital plays a role. When there is a surplus of labor and little capital, capital has clout. When there is lots of capital but little labor, labor should ahve clout.

But there is a surplus of capital as well as labor in the US. Corporate profits, income/wealth for the top 1% and corporate cash reserves have skyrocketed to record levels year after year. But they don't compete to invest in a way where they recieve a smaller share of the wealth produced. Plus there are more wealthy individuals and corporations globally, why aren't they competing to hire talent or use natural resources, and as a result of that competition giving more wealth to labor?

On top of supply/demand you have negative repercussions of moving too far in one direction or another. Since there are no negative repercussions to distributing wealth to capital (no strikes, no protests, no tax hikes, no boycotts, no fears the best employees will leave and find another job, no lawsuits) that isn't an incentive to reduce it. However you have repercussions to moving wealth redistribution too far in the direction of labor (namely that you will just fire everyone and hire permatemps, or outsource the positions if labor demands wages or protections that are too high).

If anything, the redistribution to capital is a positive feedback system because they can use that capital to push the ideology that what is good for them is good for everyone via the media, economic schools, think tanks, politics, etc.

As China's labor pool dries up (which it supposedly is, I've read the % who are young, healthy and willing to leave family and move to the shores to work has pretty much been dried up), and no other country has all the one stop benefits of China wouldn't that give more clout to labor?

Can nothing be done about it as long as there is such a global surplus of labor compared to demand?

Won't all this investment capital sitting around with nothing to do (corporations are making 1.6 trillion a year in profits, corporate cash reserves are at 2 trillion, and wealth for the wealthiest 400 individuals in the US is about 1.3 trillion) just lead to bubble after bubble? Tech stocks, real estate, etc. Will there be a renewable energy or biotech bubble next with massive overinvestment followed by a crash?

Won't the coming robotics revolutions make it much worse?

Did Marx write extensively about this, if so which was his best book on the subject? Has anyone else written about it in a way that an amateur can understand?

[Shodan]

People see what happened at GM and in the public unions. Then they say to themselves "I sure as hell didn't get an 18% increase, why should they?"

That kind of demand coming out of a recession isn't fair, no matter what the union bosses say.

Regards,
Shodan

[woodstockbirdybird]

But the exorbitant bonuses CEOs get coming out of (and during) a recession are totally justified, right?

[Shodan]

Public employee wages come out of my taxes. Paying my bit towards CEO bonuses is easily avoided by buying somewhere else.

You can't do that with public sector unions, and now, with GM either.

Regards,
Shodan

[msmith537]

Does it change your opinion to realize that you are using the term "capital" consistantly incorrectly throughout the OP? Capital is defined as "cash or goods used to generate income by investing in a business". For all intents and purposes, it is synonymous with "wealth"

Most of your OP seems to be rooted in populist political rhetoric. Basically that everyone in American is getting poorer because investment bankers and CEOs are stealing all the wealth and all the jobs are being outsourced to India and China. While there are elements of truth to that, it is actually a bit more complicated.

A major reason for the loss of power and influence of labors (by which I assume you mean "unions") is because many people don't really want or need unions. Jobs have shifted away from low level manufacturing to service and professional jobs.

Automation and outsourcing have also reduced the power of labor. Many jobs have been rendered so simple a high schooler can do them or they can be sent somewhere else.

"Capital", as you call it, or more accurately "those with access to capital" have power because they have the means to fund ventures that turn ideas into wealth. And they presumably don't fund them out of the goodness of their heart.

[Wesley Clark]

Originally Posted by msmith537

Does it change your opinion to realize that you are using the term "capital" consistantly incorrectly throughout the OP? Capital is defined as "cash or goods used to generate income by investing in a business". For all intents and purposes, it is synonymous with "wealth"

Most of your OP seems to be rooted in populist political rhetoric. Basically that everyone in American is getting poorer because investment bankers and CEOs are stealing all the wealth and all the jobs are being outsourced to India and China. While there are elements of truth to that, it is actually a bit more complicated.

A major reason for the loss of power and influence of labors (by which I assume you mean "unions") is because many people don't really want or need unions. Jobs have shifted away from low level manufacturing to service and professional jobs.

Automation and outsourcing have also reduced the power of labor. Many jobs have been rendered so simple a high schooler can do them or they can be sent somewhere else.

"Capital", as you call it, or more accurately "those with access to capital" have power because they have the means to fund ventures that turn ideas into wealth. And they presumably don't fund them out of the goodness of their heart.

Like I said, I know almost nothing about economics. By capital I meant financial resources which can be invested to turn a profit.

What you said with automation and outsourcing is what I was talking about though. My impression is there is more or less a tug of war between capital and labor over how the wealth produced is split, and things like automation and outsourcing take clout away from labor, since if labor demands higher wages or better benefits they can be outsourced, automated or replaced with permatemps. People do what those with power tell them to do, and people follow their incentives. If XYZ has lost their power, there is no need to listen to what XYZ wants. If there are a flood of permatemps, workers in China or machines willing and able to do the work, there is no incentive to offer a larger % of the wealth produced to labor.

But why hasn't the flood of capital caused competition among investors who would then accept a lower profit and rate of return in exchange for more market value? Corporate profits, cash reserves, wealth/income for the top 1% have all gone up while there are more wealthy individuals and corporations internationally (the world's richest man is from Mexico now). If it is supply and demand, why doesn't the abundant supply of wealth/capital result in capital having less clout and influence since there seem to be more than enough wealthy individuals and organizations to invest in the economy? Income inequality seems to be growing just as fast or faster than it did 30 years ago. It could be a positive feedback loop where income inequality leads to politcal polarization and laws designed to promote more income inequality. But that can't be all of it.

The demise of unions isn't solely because workers don't want them, there are other factors and all the anti-public sector union bills currently going on should attest to that. Service sector fields could be unionized since they can't be outsourced or cheaply automated, but they are not. Walmart is the largest service sector employer and they have a very strong record of union busting.

[msmith537]

Originally Posted by Wesley Clark

Like I said, I know almost nothing about economics. By capital I meant financial resources which can be invested to turn a profit.

Where do you think those resources come from?

Originally Posted by Wesley Clark

What you said with automation and outsourcing is what I was talking about though. My impression is there is more or less a tug of war between capital and labor over how the wealth produced is split,

No.

All businesses typically need both labor and capital. Businesses don't exist to employ people. They exist to make money by selling goods and services. Labor is a cost that companies strive to minimize so they can earn a greater profit. Labor earns a wage in exchange for the product of their labor. The wealth produced (profit) is split at the discretion of the owners - the people who invested their capital and seek to see a return on their investment.

The difference between labor and investors/owners is that labor does not incur any risk. At worst, they loose their source of income. Investors and owners can conceivable be worse off because they can loose all the money they put into the company.

[smiling bandit]

Actually, there's a muchy simpler reason for why labor has declined, and not just unions though that's a big part of it. Labor amounts, which have increased through more women workers and immmigration, have impacted the supply.

But a big part of it is simply that unions tended to destroy themselves. Unions these days are almost all public sector, because that's the only area they can successfully extract wealth. Meanwhile, all the old union industries have collapsed, and while unions were hardly every part of that, you can't ignore the fact that the decline of American industries is extremely well coordinated with unionization. It's not so much wage increases, btu the fact that unions tend to nail down the business and resist layoffs, in an age when constant change and also rapid hiring and sometimes firings are necessary.

[Wesley Clark]

Originally Posted by msmith537

All businesses typically need both labor and capital. Businesses don't exist to employ people. They exist to make money by selling goods and services. Labor is a cost that companies strive to minimize so they can earn a greater profit. Labor earns a wage in exchange for the product of their labor. The wealth produced (profit) is split at the discretion of the owners - the people who invested their capital and seek to see a return on their investment.

However the discretion of the owners seems to have moved away from rewarding labor, and I was curious why that is. What levers of influence have taken clout away from labor to demand higher wages or better benefits. Productivity and education levels have risen in the last 30 years but wages stagnate, so what levers of power are causing the owners to realize they have no need to offer higher wages in exchange for more productivity or education in their laborers? Like I was saying in my OP, I think it is how disposable and surplus labor has become due to immigration, H1-B visas, outsourcing, automation, permatemps, etc.

But the opposite doesn't seem to happen with capital, a flood of capital doesn't result in investors taking a smaller return in exchange for winning out over other investors in a project. But a flood of labor results in lower wages and benefits. Laborers demanding a large amount of wealth results in them being replaced or outsourced, investors demanding a large amount of wealth from the transaction reap no negative consequences from it.

Originally Posted by msmith537

The difference between labor and investors/owners is that labor does not incur any risk. At worst, they loose their source of income. Investors and owners can conceivable be worse off because they can loose all the money they put into the company.

I don't agree with that at all. Labor runs into tons of health problems as an effect of work. Musculoskeletal injuries, stress illnesses, on the job accidents, traffic accidents to/from work are all job or job related risks and I know several people who are disabled in their 60s because work wore their joints down. Plus labor has to devote a large amount of time to work, and may have to move to locations they do not want to to find work.

So there are risks. There are no risks of them going broke per se. But a laborer can get injured or sick from working, and that is a risk.

[Nobody]

Originally Posted by msmith537

The difference between labor and investors/owners is that labor does not incur any risk. At worst, they loose their source of income.

Are you saying that not being able to pay your bills isn't a big deal?

[smiling bandit]

Originally Posted by Nobody

Are you saying that not being able to pay your bills isn't a big deal?

But you can't "lose" anything. You can't end up worse than when you started without some bad luck or bad decisions. With investing, you can do everything right and lose every last penny. Investors put their own money up for risk, ad take the chance it might go away. Laborers may depend on their employer more, but nobody can just show up and take away their stuff just because.

[Nobody]

Originally Posted by smiling bandit

But you can't "lose" anything. You can't end up worse than when you started without some bad luck or bad decisions. With investing, you can do everything right and lose every last penny. Investors put their own money up for risk, ad take the chance it might go away. Laborers may depend on their employer more, but nobody can just show up and take away their stuff just because.

I'm not saying that investment isn't risky. But losing you job can make you wind up worse. No job, no money. No money, no mortgage payment, no electric payment, no water/sewer payment, etc... And you can do everything right as an employee and still get laid off.

[Wesley Clark]

Originally Posted by Nobody

I'm not saying that investment isn't risky. But losing you job can make you wind up worse. No job, no money. No money, no mortgage payment, no electric payment, no water/sewer payment, etc... And you can do everything right as an employee and still get laid off.

I think people are only looking at the financial risk entrepreneurs have and labeling that 'all risk', which is short sighted. I have heard people on the left make the exact opposite statement, that entrepreneurs don't risk 'anything' because all they risk is money, in many cases someone elses. They do not develop bad knees or arthritis or repetitive motion disorders that cripple them from doing the labor itself. Four million people are injured at work each year in the US, they wouldn't have been injured sitting at home. Of course everything can injure you, going to the grocery store can kill you. But investors invest money and laborers invest their time and health into producing wealth. Both sides make a sacrifice.

[Whack-a-Mole]

Originally Posted by Shodan

People see what happened at GM and in the public unions. Then they say to themselves "I sure as hell didn't get an 18% increase, why should they?"

That kind of demand coming out of a recession isn't fair, no matter what the union bosses say.

I will preface this by saying I have no clue about the ins and outs of salaries/benefits in Oregon.

I will say this is meaningless without an understanding of where they are now.

For instance, if they were being paid $5/day with no vacation time or health benefits this doesn't seem so bad.

I hope people realize the above is absurd but only to make a point.

We need more data to know if the demands are unreasonable.

ETA: I also might add I thought it was Negotiating 101 that you do not start out reasonable. You demand $1 million for your loaf of bread, the other side says they need it for free and you work towards a compromise.

[Shodan]

Originally Posted by Whack-a-Mole

I will preface this by saying I have no clue about the ins and outs of salaries/benefits in Oregon.

I will say this is meaningless without an understanding of where they are now.

For instance, if they were being paid $5/day with no vacation time or health benefits this doesn't seem so bad.

Perhaps you could read the article.

Don't you think it is rather absurd to imagine that they are making $5 a day?

Regards,
Shodan

[septimus]

One of the most important explanations is being overlooked here.

Income sources include workers, and the rent of land and owned capital. In a primitive society the human workers themselves comprised most of the wealth; a semi-skilled worker in a village of 100 might expect to get 1/100 of the income. But with increasing industrialization, more and more of the total wealth takes the form of invested capital, scarce land, and very skilled specialist workers. It is straightforward to conclude that unskilled laborers "deserve" far less than their proportional share.

[bump]

Here's the thing- "Labor" is pretty much NOT at a premium in many places. For example, the people who work at Wal-Mart are pretty much interchangeable with anyone off the street. There's no major training, no extraordinary physical or mental requirements, and no great expectations either.

Why would you expect "labor"to wield any power at all in situations like that? In situations where the workers are more skilled, such as tradesmen, or other workers who actually add value through skill and experience, there tends to be a more equitable exchange. The most extreme example of this are knowledge-based companies such as law firms, financial firms, IT firms, etc... where the real worth and core competency of the company is within the heads of their workers. These companies tend to pay large bonuses and salaries, because those people with the valuable heads can go elsewhere, and in many(most?) cases, it would be a net loss to the company.

I don't think labor ever really had *that* much power, really. Collective bargaining and unions are essentially a way to show the company the aggregate value of all those people, and negotiate in a block, rather than individually. This can be good- it can raise wages, improve working conditions, and things like that, without incurring a huge cost to companies.

However, once the unions go from trying to make things decent for the workers, and move into the adversarial and greedy side of things, that's when they actively hurt companies. There's a lot of "shoot the goose who laid the golden egg" going on, when unions refuse to negotiate with distressed companies- surely a pay cut or a pay freeze is better than no pay at all?

[Sinaptics]

Originally Posted by Shodan

Perhaps you could read the article.

Don't you think it is rather absurd to imagine that they are making $5 a day?

Regards,
Shodan

Did you miss the next sentence?

Originally Posted by Whack-a-Mole

I hope people realize the above is absurd but only to make a point.

The article doesn't give details about the present level of their vacation time, sick time, or other benefits. So we don't know if their request is extraordinary, or if they are just trying to get to par. I think it's reasonable to assume that they were probably asking for too much, but without further details, it's impossible to know.

[Wesley Clark]

Originally Posted by bump

Here's the thing- "Labor" is pretty much NOT at a premium in many places. For example, the people who work at Wal-Mart are pretty much interchangeable with anyone off the street. There's no major training, no extraordinary physical or mental requirements, and no great expectations either.

Why would you expect "labor"to wield any power at all in situations like that? In situations where the workers are more skilled, such as tradesmen, or other workers who actually add value through skill and experience, there tends to be a more equitable exchange. The most extreme example of this are knowledge-based companies such as law firms, financial firms, IT firms, etc... where the real worth and core competency of the company is within the heads of their workers. These companies tend to pay large bonuses and salaries, because those people with the valuable heads can go elsewhere, and in many(most?) cases, it would be a net loss to the company.

I don't think labor ever really had *that* much power, really. Collective bargaining and unions are essentially a way to show the company the aggregate value of all those people, and negotiate in a block, rather than individually. This can be good- it can raise wages, improve working conditions, and things like that, without incurring a huge cost to companies.

However, once the unions go from trying to make things decent for the workers, and move into the adversarial and greedy side of things, that's when they actively hurt companies. There's a lot of "shoot the goose who laid the golden egg" going on, when unions refuse to negotiate with distressed companies- surely a pay cut or a pay freeze is better than no pay at all?

I think automation and the labor surplus affects skilled labor too. There is an oversupply of lawyers, scientists, IT professionals, etc. Plus there is an international market of people willing to do those jobs for a fraction of the cost.

As far as the financial industry paying well due to a shortage of talented workers, I really don't know if I agree with that. Incomes shot up starting in the 70s in the financial industry, as far as I can tell the level of talent did not skyrocket to meet it. I have no idea why income in that field has gone up, but I'm sure there is more to the story than that.

[Shodan]

Originally Posted by Sinaptics

Did you miss the next sentence?

No.

The article doesn't give details about the present level of their vacation time, sick time, or other benefits. So we don't know if their request is extraordinary, or if they are just trying to get to par. I think it's reasonable to assume that they were probably asking for too much, but without further details, it's impossible to know.

I think it is a pretty safe bet to assume they were being unreasonable.

Suppose the government asked the public sector unions to accept a 50% pay cut. Would you then say "let's get all the facts before we decide if this is reasonable or not"?

You're tying yourself into rather silly-looking knots trying to justify the unjustifiable. Nobody in their right mind thinks the unions are currently on the ragged edge of starvation and need an 18% raise so they don't have to eat grass clippings.

We are dealing with the real world here - America in the 21st century, not Dickensian England where the union bosses are Oliver Twist asking for more gruel.

Regards,
Shodan

[Whack-a-Mole]

Originally Posted by Shodan

Suppose the government asked the public sector unions to accept a 50% pay cut. Would you then say "let's get all the facts before we decide if this is reasonable or not"?

Yes, I would.

There is no way to decide if these requests are reasonable or unreasonable without knowing more.

That said I agree with the above that on the face of it what is being asked for in Oregon sounds unreasonable. A 50% pay cut would sound unreasonable on the face of it too. But without more info we cannot really say for sure if it is or just how unreasonable it might be.

[Steve MB]

Originally Posted by Shodan

Public employee wages come out of my taxes. Paying my bit towards CEO bonuses is easily avoided by buying somewhere else.

Er, no. You can't avoid contributing to CEO bonuses in general unless you go live in a cave.

[Pleonast]

It comes down to supply and demand. They supply of labor, at all skill and education levels, has been increasing faster than the demand for it. The opening up of China and other developing countries is where the supply is coming from. Eventually the people there will begin demanding more goods and services for themselves and the demand for labor will start outpacing the supply.

A side effect of this is that global inequality has been decreasing (I don't have a cite handy, but I probably read it in The Economist). All those people in developing countries are getting closer now in income and wealth to the people in developed countries. This is a good thing, both from a moral standpoint and an economic one. Less inequality is good in its own right, of course; looking at inequality within a single country when we have a global economy is parochial. The reduced inequality means there are more opportunities to trade to the developing countries and increases the size of the total economic pie.

[bump]

Originally Posted by Wesley Clark

I think automation and the labor surplus affects skilled labor too. There is an oversupply of lawyers, scientists, IT professionals, etc. Plus there is an international market of people willing to do those jobs for a fraction of the cost.

As far as the financial industry paying well due to a shortage of talented workers, I really don't know if I agree with that. Incomes shot up starting in the 70s in the financial industry, as far as I can tell the level of talent did not skyrocket to meet it. I have no idea why income in that field has gone up, but I'm sure there is more to the story than that.

I don't think it's so much a supply and demand thing as far as compensation is concerned- it's more with the value that employees add. By that, I mean that with equal availability, a highly trained accountant brings more to Wal-Mart than a night stock boy does, and consequently, the accountant will be paid more. It's more of a concept of looking at employees as investments- you get a bigger ROI on paying more for better/more valuable employees, so you're willing to pay more for them.

Obviously, there's a sweet-spot of sorts, which is why companies don't pay big money often for kids straight out of college, and nor do they often hire late-career people;

Supply and demand do play into it- the ROI is raised in conditions of scarcity, and lowered in situations of plenty, but not drastically. I think this is because the lower pay jobs are also typically more interchangeable. Even in situations where there are labor shortages in certain employment sectors, nobody's paying 50k a year for stock boys- they could just as easily hire a cashier or movie theater clerk in need of a job and easily train him to be a stock boy. You can't really do that with accountants, lawyers, etc...

I think that excessive bonuses and really high pay are included in this- I'd bet that financial firms are like law firms, where most private sector lawyers don't make 100 grand a year, but almost all are still "well paid." The bigger firms pay more, because they can, and because they can use it as a recruiting tool of sorts- many lawyers' first choice is a big firm like say... Baker Botts because they pay well, and they don't want to work for Huckster, Shyster & Mountebank LLC down the street, because they're 1/16 the size of Baker Botts and don't pay as well. So Baker Botts gets to cherry pick out of law school and out of the already working population. It's an attempt to get the highest ROI they can- if they get what they perceive to be the best lawyers, they can bill more hours and get more cases, due to their performance. The billing rates of law firms are exorbitant, so it's not like it cuts into their profit margins to pay so much.

[smiling bandit]

Originally Posted by Wesley Clark

Both sides make a sacrifice.

Ok, WC, I'm just cutting you off except for this point. You're confusing pain with risk. The two are not the same. The entrepreneur and the investors face risk. Workers face the possibility of being paid off. But they cannot lose anything on the deal.

It isn't risk. You can deal with that however you like, but the fact is that capital and capital risk is always a major constraint; labor is only sometimes a constraint.

[Little Nemo]

Capital privatized the marketplace of ideas.

The media is no longer a neutral voice. Television, radio, newspapers, magazines, and book publishers are dominated by a handful of big corporations. Sure, there are independent media that offer alternative choices but they're small and easy to miss - nobody hears what they have to say unless they go looking for it. The majority of people just hear the corporate voice.

There doesn't have to be any active censorship. The media can take idea off the public agenda just by ignoring them. Talk about choices A and B and people are going to think those are the only two choices and not realize there might be a C or D or Z.

[Whack-a-Mole]

Originally Posted by Pleonast

A side effect of this is that global inequality has been decreasing (I don't have a cite handy, but I probably read it in The Economist). All those people in developing countries are getting closer now in income and wealth to the people in developed countries. This is a good thing, both from a moral standpoint and an economic one. Less inequality is good in its own right, of course; looking at inequality within a single country when we have a global economy is parochial. The reduced inequality means there are more opportunities to trade to the developing countries and increases the size of the total economic pie.

A rising tide lifts all ships theory?

Well, not really.

Not sure what you read but if the measure is world GDP has grown therefore everyone is better off is bogus.

By every measure I have read inequality is increasing globally as measured among individuals. The haves have more and more of the pie and the have-nots are still in pretty shitty conditions. Crumbs from the table do not mitigate this. It'd be like you handing some starving person a spoon and then declaring they are better off than they were.

Notice, too, that if one were to make conclusions about "true" U.S. inequality based on the first two concepts, one would be led to believe that inequality in 1989 was less than in 1959. The reverse is true: in 1989, inequality was four Gini points (or 11 percent) higher than thirty years ago.

SOURCE: http://press.princeton.edu/chapters/s7946.html (too much to quote but the article notes the other two methods which are measures of GDP and notes how they are misleading)

# While global GNP grew 40 percent between 1970 and 1985 (suggesting widening prosperity), the number of poor grew by 17 percent.

# Although 200 million people saw their incomes fall between 1965 and 1980, more than 1 billion people experienced a drop from 1980 to 1993.

# UNDP reported in 1996 that 100 countries were worse off than 15 years ago.

# Adjusting for inflation, the net worth of the median American household fell 10 percent between 1989 and 1997, declining from $54,600 to $49,900. The net worth of the top one percent is now 2.4 times the combined wealth of the poorest 80 percent.

# Between 1983 and 1995, the bottom 40 percent of households lost 80 percent of their net worth. The middle fifth lost 11 percent. By 1995, 18.5 percent of households had zero or negative net worth (an average -$5,600, down from -$3,000 in 1983).

SOURCE: http://www.globalpolicy.org/componen...218/46377.html

[Pleonast]

Originally Posted by Whack-a-Mole

By every measure I have read inequality is increasing globally as measured among individuals. The haves have more and more of the pie and the have-nots are still in pretty shitty conditions. Crumbs from the table do not mitigate this. It'd be like you handing some starving person a spoon and then declaring they are better off than they were.

Your cites show the problem with trying to make global generalizations from poorly selected subsets of the data. A can't find what I originally read, but this paper, Parametric estimations of the world distribution of income shows that the global Gini coefficient has been steadily decreasing since 1970 (see figure 3). As has the number of people in the world with an adjusted income below $1 per day (figure 4).

So globally, people are doing better now, both in terms of relative and absolute wealth (as measured by Gini coefficient and the $1 per day rate). Of course, that doesn't directly help the people in regions (like the US) where inequality is increasing, but it does mean things have been getting for most people.

[Nobody]

Originally Posted by bump

However, once the unions go from trying to make things decent for the workers, and move into the adversarial and greedy side of things, that's when they actively hurt companies. There's a lot of "shoot the goose who laid the golden egg" going on, when unions refuse to negotiate with distressed companies- surely a pay cut or a pay freeze is better than no pay at all?

I couldn't agree more with this.

Years ago I use to hate unions because I would read stories about totally lopsided deals where employees would get massive pay no virtually no work, or be inflexible about one thing or another. But due to a couple of things, one being, there's horror stories about corporations exploiting their employees, but that doesn't make all corporations bad, just like unions with unreasonable demands doesn't mean all unions are bad.

[emacknight]

Originally Posted by septimus

One of the most important explanations is being overlooked here.

Income sources include workers, and the rent of land and owned capital. In a primitive society the human workers themselves comprised most of the wealth; a semi-skilled worker in a village of 100 might expect to get 1/100 of the income. But with increasing industrialization, more and more of the total wealth takes the form of invested capital, scarce land, and very skilled specialist workers. It is straightforward to conclude that unskilled laborers "deserve" far less than their proportional share.

That was extremely well said.

It's weird to consider that workers are sharing their wealth with the machines they use.

[Nobody]

Slight hijack, but in there labor threads it seems that sometimes the low level employees are looked down upon. So I just have to say that when it comes to front-line jobs, don't forget that they're necessary.

All companies that I know of only has one CEO. There are more presidents and other executive positions, but there's still a limited number. Not everybody can be an executive director or plant manager. Somebody has to work the assembly line, or man the cash register.

Sure, for some people it's their fault that they don't go higher up the ladder, but even if everybody got their Masters degree or Ph.D., there would still be low level jobs that would need filling.

And the view that the employee is just an expense baffles me. The employee is doing the work that generates the profit. Theoretically anyway, if someone is employed by a business, it must be because they are needed by the business (yes, there are exceptions). If I invest in a pizza shop, but have nobody to make and serve the pizzas or nobody to work the cash register I have no business. The pizza makers give a reason for people to fork over their money, and the cashier gives them a way to do it. If there's no pizzas to buy, or no way to pay, I'll have no customers.

And I agree that the easier a job is to do, the less it's worth. But it almost seems like there are some who view the investor as a god, and the employee as something that has to be put up with. And with that I totally disagree.

[Wesley Clark]

Originally Posted by Nobody

Slight hijack, but in there labor threads it seems that sometimes the low level employees are looked down upon. So I just have to say that when it comes to front-line jobs, don't forget that they're necessary.

All companies that I know of only has one CEO. There are more presidents and other executive positions, but there's still a limited number. Not everybody can be an executive director or plant manager. Somebody has to work the assembly line, or man the cash register.

Sure, for some people it's their fault that they don't go higher up the ladder, but even if everybody got their Masters degree or Ph.D., there would still be low level jobs that would need filling.

And the view that the employee is just an expense baffles me. The employee is doing the work that generates the profit. Theoretically anyway, if someone is employed by a business, it must be because they are needed by the business (yes, there are exceptions). If I invest in a pizza shop, but have nobody to make and serve the pizzas or nobody to work the cash register I have no business. The pizza makers give a reason for people to fork over their money, and the cashier gives them a way to do it. If there's no pizzas to buy, or no way to pay, I'll have no customers.

And I agree that the easier a job is to do, the less it's worth. But it almost seems like there are some who view the investor as a god, and the employee as something that has to be put up with. And with that I totally disagree.

My impression is in the past labor could demand higher wages and benefits or better treatment, but now they can't. I figure that is just due to the fact that labor has lost most of its power to intimidate or negotiate with investors because labor can easily replaced or undercut while investors cannot be intimidated or undercut. And I don't see that stopping anytime soon. And as a member of labor who has to find a way to financially survive, that is bothersome.

[msmith537]

Originally Posted by Nobody

Slight hijack, but in there labor threads it seems that sometimes the low level employees are looked down upon. So I just have to say that when it comes to front-line jobs, don't forget that they're necessary.

All companies that I know of only has one CEO. There are more presidents and other executive positions, but there's still a limited number. Not everybody can be an executive director or plant manager. Somebody has to work the assembly line, or man the cash register.

Sure, for some people it's their fault that they don't go higher up the ladder, but even if everybody got their Masters degree or Ph.D., there would still be low level jobs that would need filling.

And the view that the employee is just an expense baffles me. The employee is doing the work that generates the profit. Theoretically anyway, if someone is employed by a business, it must be because they are needed by the business (yes, there are exceptions). If I invest in a pizza shop, but have nobody to make and serve the pizzas or nobody to work the cash register I have no business. The pizza makers give a reason for people to fork over their money, and the cashier gives them a way to do it. If there's no pizzas to buy, or no way to pay, I'll have no customers.

And I agree that the easier a job is to do, the less it's worth. But it almost seems like there are some who view the investor as a god, and the employee as something that has to be put up with. And with that I totally disagree.

It depends on the type of employee. A highly skilled chef is worth a great deal to a pizza place. The waitresses and busboys are pretty replaceable.

The employees are generating the work, but the work only generates a profit if the value of the work they produce exceeds their cost as employees. If you pay your entire staff twice as much, can you really cover the costs by doubling the price of your pizza?

[RickJay]

Originally Posted by emacknight

That was extremely well said.

It's weird to consider that workers are sharing their wealth with the machines they use.

I have never seen a machine draw a salary or buy a TV.

[Nobody]

Originally Posted by Wesley Clark

My impression is in the past labor could demand higher wages and benefits or better treatment, but now they can't. I figure that is just due to the fact that labor has lost most of its power to intimidate or negotiate with investors because labor can easily replaced or undercut while investors cannot be intimidated or undercut. And I don't see that stopping anytime soon. And as a member of labor who has to find a way to financially survive, that is bothersome.

Investors want to cut costs and maximize profits. The two biggest way to do that with labor costs is automation and outsourcing. Each of these have their ups and downs of course. For example, it's a good thing when dangerous jobs are automated. And for outsourcing, it can have a good effect on helping to lift up poor countries, say India. On the other hand, why pay for an American programmer when you can pay an Indian programer 60% less?

Automation, you can do nothing about, and frankly, I don't think it's all that bad. As for outsourcing, my only hope is that soon wages will be roughly equal so it won't be as cost effective to outsource. Of course, that's not counting countries that are cheaper to operate in because of things like looser environmental regulations.

And frankly, for the demise of unions, I'm sorry, but part of the blame has to go to them. When people hear about things like no cross training allowed, so that, for example, a job in a Japanese owned auto plant can be done by one person, but it takes five people in an American plant, because the contract specifies that each employee is responsible for one thing, and one thing only, and they can't do anybody else's job; That's ridiculous. Of course there are outside factors too, and politicians who try to union bust whenever they can, but big powerful unions who at times aren't reasonable don't help their own case any.

[Nobody]

Originally Posted by msmith537

It depends on the type of employee. A highly skilled chef is worth a great deal to a pizza place. The waitresses and busboys are pretty replaceable.

The employees are generating the work, but the work only generates a profit if the value of the work they produce exceeds their cost as employees. If you pay your entire staff twice as much, can you really cover the costs by doubling the price of your pizza?

Originally Posted by Nobody

And I agree that the easier a job is to do, the less it's worth.

__

[smiling bandit]

Originally Posted by Wesley Clark

My impression is in the past labor could demand higher wages and benefits or better treatment, but now they can't.

That's not exactly true. During the 50's, a relatively limited labor supply and a lot of overseas demand led to very high wages for workers, even more than the traditionally-high American labor costs. But it wasn't forever. It didn't and couldn't last. It was strange from the start.

What's interesting is that apart from some big, government-supported unions (such as the UAW, which got the gov to lean heavily on the Big Three), union influence was actually falling. The heyday of unions belonged to the earlier 1900-1930's. The union system then tended to support decentralization, negotiation, and a certain amount of reason. But it's important to understand that the older system was created by specific personalities, and its good traits weren't necessarily communicable to a new generation.

[Damuri Ajashi]

Originally Posted by msmith537

Where do you think those resources come from?

The income generated by the application of labor to capital.

No.

Yes.

All businesses typically need both labor and capital. Businesses don't exist to employ people. They exist to make money by selling goods and services. Labor is a cost that companies strive to minimize so they can earn a greater profit. Labor earns a wage in exchange for the product of their labor. The wealth produced (profit) is split at the discretion of the owners - the people who invested their capital and seek to see a return on their investment.

Over the last 30 years the GDP has shot up and the productivity of labor has also shot up. The overwhelming portion of that increase in productivity has gone to capital and those who manage capital for the capitalists. I thought the OP was asking why there has been such a one sided division of the increases in productivity over the last few decades.

Certainly one answer is the supply of labor has increased both with the flattening of the world and the increased participation of women into the work force. But another facet is that we have increasingly started to view labor as merely production inputs rather than as the constituents of a society. We forget that of all the economic systems out there, we judge the success of that system based on its effects on the people in that society.

The difference between labor and investors/owners is that labor does not incur any risk. At worst, they loose their source of income. Investors and owners can conceivable be worse off because they can loose all the money they put into the company.

So having no income is not a risk?

[Damuri Ajashi]

Originally Posted by Whack-a-Mole

ETA: I also might add I thought it was Negotiating 101 that you do not start out reasonable. You demand $1 million for your loaf of bread, the other side says they need it for free and you work towards a compromise.

Thats a good way to get people not to negotiate with you. Noone negotiates with a pig.

[Damuri Ajashi]

Originally Posted by bump

I don't think it's so much a supply and demand thing as far as compensation is concerned- it's more with the value that employees add. By that, I mean that with equal availability, a highly trained accountant brings more to Wal-Mart than a night stock boy does, and consequently, the accountant will be paid more. It's more of a concept of looking at employees as investments- you get a bigger ROI on paying more for better/more valuable employees, so you're willing to pay more for them.

Please explain the disparity between pay for American CEOs and European or Asian CEOs. Its structural not value based.

The labor market is one of the most inefficient markets in the economy

[bump]

Originally Posted by emacknight

That was extremely well said.

Quote:
Originally Posted by septimus View Post
One of the most important explanations is being overlooked here.

Income sources include workers, and the rent of land and owned capital. In a primitive society the human workers themselves comprised most of the wealth; a semi-skilled worker in a village of 100 might expect to get 1/100 of the income. But with increasing industrialization, more and more of the total wealth takes the form of invested capital, scarce land, and very skilled specialist workers. It is straightforward to conclude that unskilled laborers "deserve" far less than their proportional share.
That was extremely well said.

It's weird to consider that workers are sharing their wealth with the machines they use.

That's kind of what I was trying to get at with the law firm comparison, in a roundabout, not terribly articulate way. What I was trying to say is what he said, only that many of the highest paid jobs in today's society (doctor, lawyer, financial wonk, etc...) are the modern equivalent of that semi-skilled worker getting 1% of the income.

The high pay and bonuses is in a sense, the capital being invested in knowledge-based businesses. It has a ROI, as long as you manage to attract and keep better people than your competition.

Raising wages in non-knowledge based businesses generally has the exact opposite effect- it directly raises the cost of goods sold, and therefore, drops profits. The only way that raising wages in a non-knowledge based company pays off is if it keeps valuable experience or skill (see above) or it can be shown to improve productivity or quality. Anything else just costs the company money.

[Damuri Ajashi]

Originally Posted by Wesley Clark

I think automation and the labor surplus affects skilled labor too. There is an oversupply of lawyers, scientists, IT professionals, etc. Plus there is an international market of people willing to do those jobs for a fraction of the cost.

As far as the financial industry paying well due to a shortage of talented workers, I really don't know if I agree with that. Incomes shot up starting in the 70s in the financial industry, as far as I can tell the level of talent did not skyrocket to meet it. I have no idea why income in that field has gone up, but I'm sure there is more to the story than that.

Demand shot up. Financial transactions and financial products account for more and more of the global economy than ever before. The law has always struggled with losing talent to banking. Now medicine is facing similar challenges.

[bump]

Originally Posted by Damuri Ajashi

Please explain the disparity between pay for American CEOs and European or Asian CEOs. Its structural not value based.

The labor market is one of the most inefficient markets in the economy

You can't look at European and Asian CEO pay and necessarily say ours are overpaid. There may be regulatory issues at work, as well as non-monetary compensation at play. And anyway, CEOs don't generally set their own pay; that's what the board of directors does, and by extension, the stockholders. Apparently Euro/Asian boards and stockholders don't like the idea of high CEO pay, while US ones do.

A lot of people have these vague, vaporous notions about how much a person's labor is worth, and it's usually a combination of sour grapes and misunderstanding market mechanisms. Essentially, the labor market comes down to the same two strategies that products do - low cost or differentiation. "Low cost" workers are interchangeable; one garbageman is very much like every other one; it's stupid to pay one more than another, and equally dumb to pay any of them any more than what anyone else is paying them, because you're just throwing money away at that point.

People who differentiate themselves are the people who have a combination of skills, experience and education that makes them different from everyone else. They may have the same job title, but since the work they do isn't so cookie-cutter like, the better ones get paid more than the lesser ones.

I agree that the market's not efficient, like say... the soybean market, but with all the vagaries of people and their performance, it's probably about as good as it's going to get.

[Damuri Ajashi]

Originally Posted by emacknight

That was extremely well said.

It's weird to consider that workers are sharing their wealth with the machines they use.

I thought that was the whole point of the OP. Why has the owner of the machine been getting almost all of the benefit of the increases in productivity over the last several decades?

Its not JUST the machines that are creating all that additional production.

[Damuri Ajashi]

Originally Posted by bump

You can't look at European and Asian CEO pay and necessarily say ours are overpaid. There may be regulatory issues at work, as well as non-monetary compensation at play. And anyway, CEOs don't generally set their own pay; that's what the board of directors does, and by extension, the stockholders. Apparently Euro/Asian boards and stockholders don't like the idea of high CEO pay, while US ones do.

The stockholders have a collective action issue when it comes to executive compensation. It is a pretty small percentage impact on the bottom line so the incentive is not there to police executive compensation.

Executive compensation committees are pretty incestuous. I put you and three other CEOs on my executive compensation committee and I am on each of their compensation committees. We each think the world of each other and think we are worth whatever our respective companies can afford.

A lot of people have these vague, vaporous notions about how much a person's labor is worth, and it's usually a combination of sour grapes and misunderstanding market mechanisms. Essentially, the labor market comes down to the same two strategies that products do - low cost or differentiation. "Low cost" workers are interchangeable; one garbageman is very much like every other one; it's stupid to pay one more than another, and equally dumb to pay any of them any more than what anyone else is paying them, because you're just throwing money away at that point.

People who differentiate themselves are the people who have a combination of skills, experience and education that makes them different from everyone else. They may have the same job title, but since the work they do isn't so cookie-cutter like, the better ones get paid more than the lesser ones.

I'm not arguing that a cashier should make as much as a neurosurgeon, I'm saying that the way our economy has evolved in the last few decades places almost all of the additional value generated from increasing productivity to the person who owns the cash register and almost none of it to the cashier.

I agree that the market's not efficient, like say... the soybean market, but with all the vagaries of people and their performance, it's probably about as good as it's going to get.

And when considering that the pricing mechanism is particularly flawed in the employment market, even if we concede that this might be as good as it gets, doesn't that argue that the current wage level is the result of something more than mere market forces at work?

[Whack-a-Mole]

Originally Posted by Damuri Ajashi

Thats a good way to get people not to negotiate with you. Noone negotiates with a pig.

I thought the absurd numbers would make it clear it was outrageous and merely meant to denote an idea.

As I recall in the tax debate Obama just gave the republicans what they wanted on the Estate Tax. Except as I recall John Boehner had already said he would extend unemployment benefits.

No negotiation. No trade. Just, "Here ya go."

Were republicans suitably impressed and become nicer or less recalcitrant? Nope.

As I said, if the other side refuses to negotiate at all and does nothing but be as obstructionist as possible why would your side continue to negotiate? It takes two to negotiate and I see precious little coming from the republicans.

[Jackmannii]

Something unique (in my lifetime, anyway) that's happened in the U.S. is that labor (and labor unions) are looked down on now by both the right and the left wing. This has been a long-term thing with the Right and its championing of industry and business in general. What's surprising is the contempt for blue-collar workers and unions on the Left*, particularly in the encouragement of illegal immigration that dilutes the labor supply primarily in relation to entry-level, service and factory jobs (the latter already declining due to jobs moving abroad). It's only in recent years that I've seen pundits and editorial writers in left-leaning publications deriding American workers for not jumping at low-pay jobs that will not support their families (that low pay often being heavily related to expansion of the labor pool by immigrants).
Of course this view is related to the perception that blue-collar American workers have declined in influence and may hold politically undesirable views, while immigrants are seen as permanent converts to the Democratic Party. (I raised these points in a recent GD thread to less than universal acclaim).

Originally Posted by Nobody

Slight hijack, but in there labor threads it seems that sometimes the low level employees are looked down upon.

If you're referring to the Dope, its membership is not exactly synonymous with the working man/woman, and apart from political motivations it's nice to be able to buy goods and services made cheap by cheap labor.

*except where pro-union sentiments can be expressed in a direct anti-Republican fashion, as in the case of Wisconsin public workers.

[bump]

Originally Posted by Damuri Ajashi

I'm not arguing that a cashier should make as much as a neurosurgeon, I'm saying that the way our economy has evolved in the last few decades places almost all of the additional value generated from increasing productivity to the person who owns the cash register and almost none of it to the cashier.

The question really comes down to whether the employee added that value themselves, or was just there using better tools.

For example, let's say a sandwich shop owner moves to a big rotary Hobart slicer from having his employees use knives to slice their meat and cheese.

He's increased his productivity and his quality, hopefully translating into greater sales and more money.

The employees making the sandwiches haven't added one penny of that value; if anything, their value has been reduced, because slicing meat thinly and accurately with a knife is a skill, while just manning a semi-automated slicer doesn't take any skill.

Why should the employees share in any of that money? Their job didn't really change much, they didn't put any money into the slicer cost, and they're ultimately not as valuable as they'd been before. They're still making the compensation they agreed to when they took the job, so I'm not sure where the grounds to bitch are, other than sour grapes that the boss is making more money and they're not.

If they'd hired a special Japanese sandwich chef or something crazy like that, and he improved the profits of the restaurant through better recipes, etc.., then sure, he should share in the profits, but if the company does something to improve productivity, or sales just increase, then no, workers don't get a share, unless they increased the value that they add.

[Kearsen]

Originally Posted by RickJay

I have never seen a machine draw a salary or buy a TV.

But you also don't see an equipment operator (employed by a company) forking over his/her dollars to buy that fancy piece of equipment either.

[emacknight]

Originally Posted by Damuri Ajashi

I thought that was the whole point of the OP. Why has the owner of the machine been getting almost all of the benefit of the increases in productivity over the last several decades?

Its not JUST the machines that are creating all that additional production.

Here's a fun experiment for you to try:

Go into a casino and stand next to someone betting. When they win, ask for part of it.

If you consider "entering a casino" to be "risk" then you'd think you were entitled to a share of the winnings. You showed up that day, where is your reward?

The guy that bought the machine risked his capital. If the business fails he loses his capital. The guy that pushes the button risked nothing.

Labour has been losing power/influence because they have been systematically reducing the level of risk. The same group of guys could start a coop and all make the same salary. What you'll find is that guys at the bottom have no desire to risk what little capital they have.

A skilled athlete takes a risk when he signs on with his first team, he only has a couple of years to make a name for himself. If he chooses wrong he'll miss his shot at a championship. Even before considering salary, think Yankees or Mets? Which has a better shot this year? If a team already has three good pitchers, are you going to be number 4? Or would you rather be a starter for a shitty team.

The guy working hourly at the concession stand makes money regardless of the team's success. So it doesn't matter where he works. If he loses his job he doesn't lose his ability to earn. Are you able to see that distinction?