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

Great Debates
1

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?

2

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

3

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

4

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

5

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.

6

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.

7

Where do you think those resources come from?

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.

8

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.

9

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.

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.

10

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

11

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.

12

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.

13

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.

14

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.

15

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

16

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.

17

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?

18

Did you miss the next sentence?

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.

19

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.

20

No.

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