by Drew J Jones
Fri Dec 2nd, 2005 at 06:45:31 AM EST
back from the front page. Title changed. -- Jérôme
RDF jumped into the rat's nest of discussing why working people in the US have seen little gain in recent decades -- particularly since the 1970s, when the Great Productivity Slowdown took place -- and why the wealthy have made such enormous gains. I don't have any statistics at the moment, but let me jump (blindly, I might add) into a discussion of what I think may be happening. The hypothesis was that tax cuts, directed to the wealty, along with the deficits that inevitably followed, have financed the gains of the wealthy.
Now, to some extent, this is probably true. Without question, handing tax cuts to wealthy people will increase the well-being, financially, of wealthy people. That's reasonably straight-forward. But, historically, wages rise at roughly the same pace as productivity growth. The two are not increasing at the same rate right now. Why? I'm not going to attempt to give a definitive answer on this, but rather just lay out a few pieces of what I think is a very large puzzle.
Part of the problem may be the rise of the service sector. As rdf noted, the economy has changed. It is, I think, generally agreed upon that, circa 1975, unionized manufacturing jobs reached their peak in America -- towards the end of the "Great Keynesian Boom," as Brad DeLong called it, which lasted from the end of WWII until the '70s. (There were some signs of a slowdown in the '60s, too.) The productivity of an autoworker is easily measured. The productivity of a Wal-Mart employee is not. (Did Jim-Bo stock the shelves at a faster pace this year? How the hell should I know?)
The aggregate measure of wage growth is nice, I suppose, but I suspect -- again, I don't have the figures -- that if we were to compare the middle-class with the working-class, we would find fairly large differences, as well. My point is that the service sector has helped to create a situation in which the wages of those at the bottom do not rise quickly, because there is little progress to be made. Those, in the middle and at the top, with opportunities unavailable to working-class people, can see huge gains because their skills are highly demanded and, therefore, cost more. (The average business economist in America makes over $150,000/yr. after gaining some experience, for example. And I'm the idiot choosing academia.)
Businesses need people to (say) help get the Beijing office up and running, and, at the same time, CEOs are thinking, "Holy Communist Party, Batman! Why am I paying Bob $25/hr. for a job that Hu can perform for $25/week?" It's the same job. Anybody can make a pillow. (Unfortunately, many of the people making these goods are kids, but that's a political issue, and one that we need to hammer whenever possible.)
Jerome has also touched on the fact that, with the rise of China and that of India, nearly three billion workers have now joined the labor market. The supply curve shifts out, and the wage falls. And that's one hell of a shift. This would also account for, at least in part, the huge corporate profits we're seeing -- helped by Bush and Reagan's tax cuts -- and the falling wages of the working class.
So we have strong market forces pulling down the working-class's wages. There were gains made in the 1990s. The internet allowed people to get a lot more done in the office, and, because goods like computers improve at such a rapid pace -- my Apple iBook has 512mb of RAM, and, already, the damned thing, at less than one year old, is beginning to look out of date -- those gains can, albeit to a lesser extent, continue at a brisk pace. But, again, this helps people in the middle. Working-class people don't work in offices, and while most working-class families are now online -- the fastest-growing groups getting on are blacks and the elderly -- it might not help them very much. (It might, however, help their children integrate into the modern economy, but that's another diary.)
If we look at productivity growth in the US (.pdf) -- in (1) Manufacturing, and (2) All Non-Agricultural -- from 1990-1999, we see that productivity growth in manufacturing was quite strong, while much less so for all other non-agro sectors. Remember that manufacturing, especially unionized manufacturing, is becoming a smaller and smaller sector of the economy. In 1999, productivity growth in manufacturing hit an astonishing 6.2%. (These figures are, I believe, taken from the Bureau of Labor Statistics, or BLS.) The growth in the other sectors was only 2.9% -- not bad, but nowhere near the former.
If I am correct in any way, the question then becomes, "How do we solve this problem?" On that, I'll have more later. In the meantime, let me know what you all think -- about both my hypothesis and about the policy implications.