I don’t even know what that means “race to the bottom”. Companies and consumers are always trying to “race to the bottom” on costs (including wages). I feel like people who use this term don’t understand the basic concept of supply and demand.
There are a couple reasons for income inequality IMHO. One is that the economy simply doesn’t NEED as many unskilled, uneducated workers or even “skilled” educated workers who just push paper in an office for 40 years. Automation and computerization has eliminated a lot of low-level jobs and made a lot more jobs a lot more standardized. Which means that where a company actually has to hire someone, they can bring in an eager young grad who can push some buttons, rather than train someone to build up 10 years of experience before they can master a process.
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Despite having (relatively very modest) income growth the middle class has dramatically decreasing wealth as they have to spend more to be competitive with education and skills in the marketplace and thereby also accumulate more debt. And of course have also lost wealth that was contained in the value of their homes.
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The people who do continue to make money are the business owners and their agents (ie upper management) or jobs so technical and specialized they can’t be automated or outsourced. So what this has also done is put a premium on a top-notch higher education, creating further barriers to entering the upper and upper middle classes.
Furthermore, the further separation of “the company” (really the shareholders and upper management) from “the workers” is exacerbating the problem as workers become interchangeable cogs with no career growth potential.
I see this in some form or another at a lot of companies, but probably the best example is Uber. Aa relatively small number of highly educated individuals with no physical assets accumulated capital to create a business employing thousands of independent contractors. There is a big separation between a typical Uber driver and an executive at Uber’s corporate offices.
But income inequality wasn’t “caused” by Wall Street. Wall Street is just in the business of banking and speculating on markets.
When looking at solutions it’s often a function of government interference of market forces that pushes prices up. Take something like education. My college was a commuter college when I went to school (it’s a state school). We could afford to work part time and get a 4 year degree. The school didn’t have what I would call a lot of amenities. It was straight forward education. Now it’s a campus school and it’s obvious they’ve poured money into it. The old student union was a glorified frat house that served a modest assortment of food. The new one looks like Trump built it. We didn’t go for the “experience”. We went to get an affordable education. Somewhere along the way the idea of a no-nonsense place of learning has changed.
if concentrated wealth is power so is concentrated poverty. As we increase social spending using debt we decrease available funds for the same purpose. It’s not sustainable. And again, Government intervention alters market forces. By providing low-interest loans for housing they add more homeowners into the market which drives up the price of homes. The result is a housing economy of artificially high valued houses built on bad loans. It’s not sustainable and collapses on itself. It’s still happening and the bubble will burst again.
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I remain unsure however of the best approaches to the issue. I fear simplistic answers that end up making things worse.
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One HUGE elephant in the room is that we do absolutely nothing to curb population growth in low income families. This is literally a breading program for people who do not have the capacity to raise children. Look at the drop out rate in poor communities. It’s staggering. And of those who remain and get a diploma they are held to such a low standard as to void the process entirely. As this population grows it requires an increase in social spending which is done through debt. It’s not sustainable.
This has to be addressed as it is a major factor in viable production in a world market. What little production we have left is struggling with a work force that is poorly educated or motivated.
I am not so sure that it is “government interference” that has resulting in greater amenities at your state school as much as market forces have. They are competing for quality students. The “obvious money” poured into it has very likely come in fromhigher tuitions, not more state funding. Germany is perhaps a case study of “government interference”, college is tuition free:
FWIW and really an aside, Germany has recently acknowledged their lack of top tier programs, the lack of an equal to the Ivy League, and have taken steps to address it.
Still, market forces … the best students who have the resources will still travel for a Stanford or a Harvard.
As to your comment about a breeding program … in point of fact birth rates across demographic groups are dropping. Black birth rates are converging on White birth rates. In fact the recession resulted in many holding off on having children, perhaps forever.
If everyone was already making minimum wage, it wouldn’t be a race, the race would be over.
We are pitting worker against worker to compete on wages to the point where jobs that used to provide decent (but not great) standards of living are just a step or two above working the register at Chik-fil-A.
I don’t think you understand what a race to the bottom is. A race to the bottom is not a company trying to get labor for lower wages. A race to the bottom is workers chasing jobs by offering to accept lower wages. We used to prevent this sort of wage race to the bottom with unions. Collective action allows these workers to avoid cutting each other’s throats.
Its not just automation. I’m not talking about throwing sabots in the gears because the machines are taking away jobs. Technological advances have historically improved productivity. Improved productivity has historically lowered costs which has increased demand for labor far more than enough to make up for any job loss associated with with the automation so that labor was making more AND capital was making more.
Take the Cotton Gin for example. It put a lot of slaves out of work picking seeds out of cotton. But it also greatly reduced the cost of all things made out of cotton which actually increased the demand for slave labor to pick the cotton to be cleaned by the cotton gins.
Its not just a matter of generational shift, with old people being unemployed and younger people taking their place in the work force. The unemployment/underemployment is not concentrated at the high end of the age range. Its mostly at the low end. I don’t know of any job that involves just pushing a button that doesn’t benefit from experience, maturity and knowledge.
No of course not but if you see wall street to represent the capitalist class then income inequality is in large part the result of the change in how wealth created by increases in productivity are divided between labor and capital.
Well, not really. The vast bulk of how people on wall street make money is by creating liquidity. The provide a marketplace for borrowers to borrow and lenders to lend. It provides a marketplace for investors to invest and companies to take in investments. It provides a marketplace for people to manage their risks by laying off risks to people who want those risks (either to hedge an opposite risk they have or to take a speculative position (it should be noted that the vast majority of this risk shifting is hedging (or reducing of risk) rather than speculating (or increasing risk), there are FAR more people who buy interest rate swaps or currency swaps to hedge their interest rate or currency exposure than there are people who expose themselves to interest rate or currency risk because they think they have a crystal ball).
Yes…I specifically said that in the post you are quoting!
From an economics standpoint, it’s the same thing. The company always wants to pay the lowest wage it can (just like any other cost). Really the problem is the introduction of developing nations into the labor force floods the market with cheap labor causing the new equilibrium point to drop to a lower level than workers in developed nations are used to. Eventually, those wages will rise as wages increase in the developing nations, but in the near term it creates a lot of difficult changes.
Wall Street makes a convenient “evil face of capitalism” because of the perception of it being full of amoral, egotistical, materialistic jerks who only care about wealth and power.
All quintiles? You sure about that? or are you counting the growth from the 1970’s to now? The past decade has not been so good for folks at the bottom of the scale.
Sometimes it matters which end of the telescope you are looking through.
Yes, eventually wages in China and India will rise enough to let American wages rise as well. In the meantime some of that rise will be coming in part at the expense of growth in American wages. That is wage growth that Americans will never get back.
Yes all that may be true but wall street represents the owners of capital more than anything else. Wall street is not there to cater to the egotistical bankers that they employ, it is there to cater to the capitalists.
I’m just saying that Wall Street has a useful and legitimate purpose that should not be punished. The problem with income disparity can be addressed without fucking with wall street by revitalizing unions. The problems associated with risk to the financial system can be addressed with better regulation (Dodd Frank is not really as great a Obama and Hillary seem to think it is).
You cited the very same CBO report I cited to make my point, so you know the timescale. If you read it, you also know it includes more income inputs and outputs than just CPS ASEC data, unlike your other charts, and it even adjusts for changes in household size.
This of course ignores any issues with CPI-U-RS, technology innovation, etc. But it’s a good start.
So then you realize its not an increase in disparity (and I agree I would rather be unequally rich than equally poor), there is a trend. Income growth for the middle class is slowing, income growth for the capitalist class is accelerating and income for the poor is falling.
When you have huge improvements to productivity and marginal improvements to income for all but the capitalist class, you can say that the way that wealth is distributed is becoming a problem.
That’s really dependent on WHEN you were earning that 25k a year. If it was say… 1984, that’s a whole different kettle of fish than making 25k these days. Or even 20 years ago; I made 30k out of college, and while I put money in my retirement accounts, I didn’t max them out. Nor was I living an impoverished existence, although I did have to keep a pretty close eye on my budget and I didn’t have much in the way of savings until I got a bonus at work that gave me a good start on a healthy savings account.
And… Damuri Ajashi what’s with the notion that improvments in productivity, and by extension, assumed increases in profit, ought to be shared? That’s never been how it’s worked; typically higher profits means that companies grow, and the labor market gets tighter, and wages go up as a result, not because companies and their ownership are altruistic and want to share the wealth.
The problem is, a lot of the productivity gains aren’t resulting in growth, or are due to things like automation or offshoring that actually reduce the number of relatively well paid jobs at the lower end, so we’re not seeing the historical pattern of wage growth. Basically what we’re seeing isn’t a rising tide that should be lifting all boats, but rather a few boats becoming more buoyant (to use that particular metaphor)
Ultimately though, the diminution of the US manufacturing base is the primary cause of all this; if the blue collar job market was still like it was in the 1960s, we probably wouldn’t be having this discussion, as it would be the rising tide lifting all boats.
Whatever the mechanism, that IS in fact how it worked. Increases in productivity led to proportional increases in the wage level. This increase was not simply the inevitable result of supply/demand of labor. It was frequently the result of organized labor. Labor shortages led to wage increases. Do you think we see similar wage increases today when labor supplies start to get tighter?
The cotton gin was also automation and it led to huge increases in demand for slaves. Unless you are automating the entire process, increased productivity associated with automation frequently leads to higher wages.
And having labor at the table when they negotiated these free trade agreements might have done something to change that. its not like our trading partners don’t have labor represented when they are sitting at the negotiating table. or are you under the impression that these free trade agreements are ideologically pure trade agreements?
So perhaps we can shelve supply side economics because nothing seems to be trickling down.
