Posts Tagged ‘exploitation’

wage share

It’s obvious to anyone who looks at the numbers that the wage share of national income is historically low. And it’s been falling for decades now, since 1970.

Before that, during the short Golden Age of U.S. capitalism, the presumption was that the share of national income going to labor was and would remain relatively stable, hovering around 50 percent. But then it started to fall, and now (as of 2015) stands at 43 percent.

That’s a precipitous drop for a supposedly stable share of the total amount produced by workers, especially as productivity rose dramatically during that same period.

The question is, what has caused that decline in the labor share?

The latest story proffered by mainstream economists (such as David Autor and his coauthors) has to do with “superstar” firms:

From manufacturing to retailing, giant companies have managed to gobble up a larger and larger share of the market.

While such concentration has resulted in enormous profits for investors and owners of behemoths like Facebook, Google and Amazon, this type of “winner take most” competition may not be so good for workers as a whole. Over the last 30 years, their share of the total income kitty has been eroding. And the industries where concentration is the greatest is where labor’s share has dropped the most. . .

Think about the retail sector, where mom-and-pop stores once crowded the landscape. Now it is dominated by a handful of giants like Walmart, Target and Costco.

It is true, industry concentration has increased dramatically in recent decades (as I explain here). And the wage share has declined (as illustrated in the chart above).

Here’s the problem: exactly the opposite argument is the one that prevailed in the United States for the earlier period. Economists at the time argued that American workers earned a relatively high share of national income because they worked in concentrated industries, such as cars and steel. Thus, their collectively bargained wages included a portion of the “monopoly rents” captured by the firms within those industries.

Now that the wage share has clearly fallen, and shows no signs of returning to its previous levels, economists have changed their story. In their view, market concentration leads to a lower, not higher, wage share.

Why has there been such an about-face in economists’ story about the causes of the declining wage share?

What all the existing stories share is that they avoid identifying anything that has been done to workers as a class. Whether the story is about technological change, globalization, or now superstar firms, the idea is that there are larger forces that unwittingly have created winners and losers—and the losers, if they want, need to acquire the education and skills to join the winners. But don’t touch the basic elements of the economic system that has created such disparate and divergent outcomes.

As it turns out, the presumed rule of a stable wage share turns out to have been an illusion, an exceptional period of relatively short duration during which workers’ wages did in fact rise along with productivity. That wasn’t the case before, and it hasn’t been true since.

The actual rule, as it turns out, is that the wage share falls, as the rate of exploitation increases. That’s how capitalism works, at least much of the time—through periods of faster and slower technological change, higher or lower levels of globalization, more or less concentrated industries.

Sure, under a particular set of postwar conditions in the United States, for two and a half decades or so, the wage share remained relatively stable (and not without pitched battles between capital and labor, as Richard McIntyre and Michael Hillard have shown). But that ended decades ago, and since then workers have been forced to have the freedom to sell their ability to work under conditions that, even as productivity continued to grow, the wage share itself declined.

Mainstream economists have finally recognized the fact that workers’ share of national income has been failing. But they continue to formulate stories that deflect attention from the real problem, the relative immiseration of workers that has them falling further and further behind.

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Special mention

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Regular readers know I take statistics quite seriously. So, as it turns out, did Stephen Jay Gould who, in the most poignant story about statistics of which I am aware, explained how important it is to go beyond the abstractions of central tendencies and understand the distribution of variation within the numbers.

And right now, when the numbers are under attack—when, for example, the new Trump administration is threatening to purge the inconvenient numbers about climate change—it is even more important to understand the role statistics play in economic and social life.*

William Davies [ht: ja] offers one story about statistics, starting with the recent populist attacks on public statistics and the questioning of the experts that produce and interpret them. His view is that, for all their faults, the numbers collected and disseminated by technical experts within national statistical offices need to be defended—as the representation of “common ideas of society and collective progress”—against the rise of private “data.”

A post-statistical society is a potentially frightening proposition, not because it would lack any forms of truth or expertise altogether, but because it would drastically privatise them. Statistics are one of many pillars of liberalism, indeed of Enlightenment. The experts who produce and use them have become painted as arrogant and oblivious to the emotional and local dimensions of politics. No doubt there are ways in which data collection could be adapted to reflect lived experiences better. But the battle that will need to be waged in the long term is not between an elite-led politics of facts versus a populist politics of feeling. It is between those still committed to public knowledge and public argument and those who profit from the ongoing disintegration of those things.

I understand the threat posed by big, private data—all those numbers that are collected “behind our backs and beyond our knowledge” when we travel, make purchases, and participate in social media, and in turn are utilized to sell us even more commodities (including, of course, political candidates).

But I also think Davies, in his rush to condemn private control over big data, presents too uncritical of a defense of “the kinds of unambiguous, objective, potentially consensus-forming claims about society that statisticians and economists are paid for.”

Consider, for example, one of the “unambiguous, objective, potentially consensus-forming claims about society” Davies himself cites: GDP. Just last Friday, the headlines reported that the U.S. economy grew “only” 1.6 percent during the last quarter of 2016, “the lowest level in five years.”

The presumption was that the decline in the number (with respect to both previous quarters and economists’ forecasts) represented a fundamental problem. But why should it—why should a decline in the growth rate of GDP be taken as a sign of something that needs to be fixed?

Davies does mention that GDP “only captures the value of paid work, thereby excluding the work traditionally done by women in the domestic sphere, has made it a target of feminist critique since the 1960s.” But the controversies surrounding that particular statistic are much more widespread than Davies would have us believe. As a number of recent books (including Ehsan Masood’s The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World) have clearly explained, the initial formulation of that particular measure of national income as well as subsequent revisions have involved theoretical and political choices about what should and should not be included—government expenditures but not labor within households, the production of fossil fuels but not the destruction of the natural environment, sales of private security but not the growing inequality it is designed to protect against.**

Even more fundamentally, GDP is a measure of market transactions, of goods and services produced—and thus the contemporary counting of the elements celebrated by Adam Smith’s notion of the “wealth of nations.” But what it doesn’t measure are the conditions under which those commodities are produced.

Me, I’d be much more willing to join forces with Davies and defend the claims about society that statisticians and economists are paid for if they were also paid to calculate and publicly report one other number, S/V, the rate of exploitation.

 

**We should remember that perhaps the real hero of volume 1 of Capital was Leonard Horner, who as a factory inspector “carried on a life-long contest, not only with the embittered manufacturers, but also with the Cabinet, to whom the number of votes given by the masters in the Lower House, was a matter of far greater importance than the number of hours worked by the ‘hands’ in the mills.”

**Other useful books on GDP include the following: Philipp Lepenies’s The Power of a Single Number: A Political History of GDP (Columbia University Press, 2016), Lorenzo Fioramonti’s Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Zed Books, 2013), and Thomas A. Stapleford’s The Cost of Living in America: A Political History of Economic Statistics, 1880-2000 (Cambridge University Press, 2009).

rising-tide-lifts-all-boats

A constant refrain among mainstream economists and pundits since the crash of 2007-08 has been that, while the state of mainstream macroeconomics is poor, all is well within microeconomics.

The problems within macroeconomics are, of course, well known: Mainstream macroeconomists didn’t predict the crash. They didn’t even include the possibility of such a crash within their theory or models. And they certainly didn’t know what to do once the crash occurred.

What about microeconomics, the area of mainstream economics that was supposedly untouched by all the failures in the other half of the official discipline? Well, as it turns out, there are major problems there, too—especially given the obscene levels of inequality that both preceded and have resumed since the crash erupted, not to mention the slow economic growth that rising inequality was supposed to solve.

In particular, as I have written many times over the years, the idea that a rising tide lifts all boats—along with its theoretical justification, marginal productivity theory—needs to be questioned and ultimately abandoned.

But you don’t have to take my word for it. Just read the latest essay by Nobel Prize-winning economist Joseph Stiglitz.

Stiglitz first explains that neoclassical economists developed marginal productivity theory as a direct response to Marxist claims that the returns to capital are based on the exploitation of workers.

While exploitation suggests that those at the top get what they get by taking away from those at the bottom, marginal productivity theory suggests that those at the top only get what they add. The advocates of this view have gone further: they have suggested that in a competitive market, exploitation (e.g. as a result of monopoly power or discrimination) simply couldn’t persist, and that additions to capital would cause wages to increase, so workers would be better off thanks to the savings and innovation of those at the top.

More specifically, marginal productivity theory maintains that, due to competition, everyone participating in the production process earns remuneration equal to her or his marginal productivity. This theory associates higher incomes with a greater contribution to society. This can justify, for instance, preferential tax treatment for the rich: by taxing high incomes we would deprive them of the ‘just deserts’ for their contribution to society, and, even more importantly, we would discourage them from expressing their talent. Moreover, the more they contribute— the harder they work and the more they save— the better it is for workers, whose wages will rise as a result.

Then he argues that three striking aspects of the evolution of the United States and most other rich countries in the past thirty-five years—the increase in the wealth-to-income ratio, the stagnation of median wages, and the failure of the return to capital to decline—call into question the neoclassical story about the distribution of income.

Standard neoclassical theories, in which ‘wealth’ is equated with ‘capital’, would suggest that the increase in capital should be associated with a decline in the return to capital and an increase in wages. The failure of unskilled workers’ wages to increase has been attributed by some (especially in the 1990s) to skill-biased technological change, which increased the premium put by the market on skills. Hence, those with skills would see their wages rise, and those without skills would see them fall. But recent years have seen a decline in the wages paid even to skilled workers. Moreover, as my recent research shows, average wages should have increased, even if some wages fell. Something else must be going on.

As Stiglitz sees it, that “something else” is a combination of rent-seeking (especially land rents, intellectual property rents, and monopoly power) and increased exploitation (especially the weakening of workers’ bargaining power, based on weak unions and asymmetric globalization).*

The result is that the rising tide has only lifted a few boats at the top and left everyone else behind.

But Stiglitz is not done. He also explains that not only is growing inequality not necessary for growth; it actually has negative effects: it leads to weak aggregate demand (and, in an attempt to solve that problem, asset bubbles), less equality of opportunity (thus lowering growth in the future), and lower levels of public investment (since the rich believe they don’t need things like public transportation, infrastructure, technology, and education).

It should be noted that the existence of these adverse effects of inequality on growth is itself evidence against an explanation of today’s high level of inequality based on marginal productivity theory. For the basic premise of marginal productivity is that those at the top are simply receiving just deserts for their efforts, and that the rest of society benefits from their activities. If that were so, we should expect to see higher growth associated with higher incomes at the top. In fact, we see just the opposite.

Neoclassical marginal productivity theory was never a plausible explanation of the distribution of income in capitalist societies. And, as Stiglitz explains, it is even more questionable in light of the spectacular growth of inequality in recent decades.

The only conclusion is that we live in strange times—when the illusion of a rising tide that lifts all boats (and, with it, trickledown economics, “just deserts,” and the like) has been shattered, and yet mainstream economists continue to teach (and use as the basis of economic policy) its theoretical underpinnings, marginal productivity theory.

There’s nothing left but to declare that both mainstream macroeconomics and microeconomics—as basic theory and a guide for economic policy—have failed. There’s simply nothing there to be fixed. Both mainstream macroeconomics and microeconomics need to be set aside in favor of very different analyses and explanations of capitalist instability and inequality.

 

*Elsewhere (e.g., herehere, and here), I have raised questions about the rent-seeking argument and showed how it is different from the alternative, surplus-seeking explanation of inequality.

mike3may

One of the biggest crime waves in America is not robbery. It is, as Jeff Spross [ht: sm] explains, wage theft.

In dollar terms, what group of Americans steals the most from their fellow citizens each year?

The answer might surprise you: It’s employers, many of whom are committing what’s known as wage theft. It’s not just about underpaying workers. They’re not paying workers what they’re legally owed for the labor they put in.

It takes different forms: not paying workers the federal, state, or local minimum wage; not paying them overtime; or just monkeying around with job titles to avoid regulations.

No one knows exactly how big a problem wage theft is, but in 2012 federal and state agencies recovered $933 million for victims of wage theft. By comparison, all the property taken in all the robberies of all types in 2012, solved or unsolved, amounted to a little under $341 million.

Remember, that $933 million is just the wage theft that’s been addressed by authorities. The full scale of the problem is likely monumentally larger: Research suggests American workers are getting screwed out of $20 billion to $50 billion annually.

Actually, employers steal from workers in at least two different ways: when they don’t pay them what they’re legally owed, and even when they do. In the former case, the laws and enforcement are weak—but at least prosecutors and labor groups are getting more aggressive about pursuing wage theft. Maybe, then, workers will be able to recover the back pay they’re owed and employers, instead of just paying small fines when they’re caught, might actually go to jail.

In the latter case, fixing the theft that occurs even when workers are paid what they’re legally owed, is even more difficult, at least within existing economic institutions. That’s because, under the rules of capitalism, workers receive a wage (which, at least under certain circumstances, equals the value of their labor power). But then, outside the labor-market exchange, when workers start to produce, they create value that is equal not only to their wages, but also an additional amount, a surplus. Even when workers receive their legally mandated wages, that extra or surplus-value is appropriated by their employers. It’s legal and, within the ethical code of capitalism, “fair.”

So, within contemporary capitalism, we should be aware of two kinds of wage theft, both committed by employers: the theft of legally mandated wages and the theft that occurs even when workers receive their legally mandated wages.

The first is a case of individual theft, the second a social theft. Both, it seems, are countenanced within contemporary capitalism—and workers are made to suffer as a result.

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From the very beginning, one of the central claims on behalf of capitalism has been that it leads to increases in productivity—and, as a result, an increase in the wealth of nations. The idea is that, the more national wealth increases (the more commodities are produced per person hour worked), the higher living standards of ordinary people will be (i.e., real wages will increase).* We find that story in pretty much every text of mainstream economics, from Adam Smith to Deirdre McCloskey.

That’s why Karl Marx spent so much time (hundreds of pages, in fact) discussing productivity (along with machinery, mechanization, technical change, and so forth) in his critique of political economy. So, John Cassidy gets it wrong.

Marx (not to mention other nineteenth-century critics of capitalism) never denied that there was a connection between increases in productivity and a rise in workers’ wages. That would be silly, both theoretically and empirically. All he ever did was deny there’s an automatic or necessary relationship between them—and, perhaps more important, that increases in real wages didn’t mean workers weren’t being increasingly exploited.

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The first point (one even Cassidy, in a way, concedes) is easy to show: for a time (until 1973 or so, in the United States), workers’ real wages increased at roughly the same rate as productivity. Then (from 1973 onward), productivity continued to grow but workers’ wages stagnated.

One key question, for the pre-1973 period, is why productivity and workers’ real wages increased in tandem. Cassidy assumes that wages grew because of the increases in productivity. Nothing could be further from the truth. The explanation for the increases in productivity (having to do with the growth of manufacturing, capitalist competition, the role of U.S. corporations in the world economy, and so on) is separate from the change in wages (based on fast economic growth, unionization, a shortage of labor power, and so on). There’s simply no automatic relationship between increases in productivity and increases in real wages, which has been confirmed by their divergence after 1973.

The second point is, in my view, even more important. It’s possible for workers’ wages to increase (at or even above the rate of growth of productivity) and for capitalist exploitation to also be rising.

Let me explain. In Marxian theory, the rate of exploitation (s/v) is the ratio of surplus-value (s) to the value of labor power (v). The value of labor power is, in turn, equal to the exchange-value per unit use-value (e), or price, of the commodities in the wage bundle (q), or the real wage. So, we have v = e*q and, in terms of rates of change, Δv/v = Δe/e + Δq/q. Mathematically, exploitation can increase (Marx referred to it as relative surplus-value) if the value of labor power is decreasing (Δv/v is negative) even if real wages are going up (Δq/q is positive) as along as the change in the price of wage commodities is negative (Δe/e) and its absolute value is greater than the change in real wages (|Δe/e| > |Δq/q|).

For example, in terms of numbers: if real wages increase by 10 percent (workers are buying more things) but the prices of the items in the wage bundle (food, clothing, shelter) decrease by 20 percent, then the value of labor power (what capitalists have to pay to get access to the commodity labor power) will decrease by 10 percent. Voilà! Higher real wages can be (and, throughout much of the history of U.S. capitalism, have been) accompanied by rising exploitation.

And that’s precisely one of the effects of increasing productivity: it lowers the exchange-value per unit use-value of wage commodities.** Less labor is embodied in each unit of bread, shirts, and housing. The fact that workers are able to purchase more of those commodities (say, at the same rate as productivity is increasing) doesn’t mean exploitation is not also increasing.

That’s even more the case when real wages are stagnant (Δq/q is equal to zero). Then, the decline in the price of wage goods (again,  decreasing by 20 percent) is translated directly into an increase in exploitation (via a 20 percent decrease in v).

But what if rate of growth of domestic productivity begins to decline (as it did after 1973, and even more so in recent years)? Then, the domestic contribution to the decline in the price of wage commodities would fall (say, to 10 percent). But, at the same time, if jobs are offshored and cheaper wage goods are imported from abroad (think Walmart), that also leads to a decline in the price of wage goods (say, by another 10 percent). So, even with declining domestic productivity growth, the combination of domestic production and imported goods can lead to a decline in the price of wage goods (for a total, as before, of 20 percent) that, with constant real wages, decreases the value of labor power (by 20 percent) and increases the rate of exploitation.

So, while Cassidy and many others are worried about a slowdown in productivity growth (linking it to workers’ wages and living standards), workers know that increases in productivity don’t automatically lead to increases in real wages. And even if real wages do rise, it’s still likely they’ll be more exploited than before.

Their employers, not they, will be ones to benefit.

 

*It is merely presumed that the standard of living of those at the top, the capitalists and other members of the 1 percent, would be just fine.

**Another, separate issue is why productivity itself might increase. The Marxian argument is that, during the course of competing over “super-profits,” that is distributions of the surplus-value among and between capitalist enterprises, capitalists will engage in technical change, which in turn leads to increases in productivity and a decline in the value of the commodities they produce. An interesting question, then, is why productivity in the United States and other advanced countries has slowed down. One reason may be a decline in competitive pressures among enterprises that produce goods and services.

IOC

U.S. Olympic rower Megan Kalmoe doesn’t want to talk about water quality anymore. As she explained on her blog, journalists are ruining the 2016 Olympic games by being “fixated on shit in the water.”

We are American, and we are going to Rio to represent you in this potentially flawed and imperfect setting that you are trying so desperately to get the public to love to hate.  We are going to compete for medals to bring them home to you, and for you so that the US has a good shot at winning the medal tally again in Rio.  We go to Rio and face incredible odds, some of us, for you so that you will be proud of us, and proud of supporting Team USA. We are supposed to be a Team–all of us–and those of you covering our stories, and those of you resting comfortably in your intellectual armchairs are supposed to have our backs. All of us owe something to our nation for getting us this far, or for believing in us, and competing under our shared colors is our way of expressing our gratitude to you.  So tell me again why you want to talk about poop? . . .

I will row through shit for you, America.

Kalmoe and her fellow participants are, by her own admission, experts on only one thing: their performance.

Unfortunately, what she doesn’t take into account is the real shit in the water: the financing of the International Olympic Committee. That’s what makes it difficult for both viewers like me and athletes like her.

As the Washington Post explains, Olympic executives cash in on a “Movement” (as in “the Olympic Movement”) that keeps athletes poor. It’s just like any other modern capitalist corporation: the athletes do most of the work (in the water and on the fields) and receive little by way of compensation (especially the ones who are not stars in major, televised sports), while the national and international board members and executives walk away with much of the surplus the athletes produce.

At the very top of “the Movement” sits the International Olympic Committee, a nonprofit run by a “volunteer” president who gets an annual “allowance” of $251,000 and lives rent-free in a five-star hotel and spa in Switzerland.

At the very bottom of “the Movement” — beneath the IOC members who travel first-class and get paid thousands of dollars just to attend the Olympics, beneath the executives who make hundreds of thousands to organize the Games, beneath the international sports federations, the national sport federations and the national Olympic committees and all of their employees — are the actual athletes whose moments of triumph and pain will flicker on television screens around the globe starting Friday. . .

But by the time that flood of cash flows through the Movement and reaches the athletes, barely a trickle remains, often a few thousand dollars at most. For members of Team USA — many of whom live meagerly off the largesse of friends and family, charity, and public assistance — the biggest tangible reward they’ll receive for making it to Rio will be two suitcases full of free Nike and Ralph Lauren clothing they are required to wear at all team events.

In the words of its charter, the Olympic Movement is devoted “to place sport at the service of the harmonious development of humankind, with a view to promoting a peaceful society.” To an increasingly vocal and active group of current and former Olympic athletes in the United States, however, the Movement is a vast, global bureaucracy that treats athletes like replaceable cogs, restricting their income without fear of reprisal from a workforce unable, or unwilling, to unionize.

“The athletes are the very bottom of a trickle-down system, and there’s just not much left for us,” said Cyrus Hostetler, 29, a Team USA javelin thrower and two-time Olympian who said the most he’s ever made in one year in his career, after expenses, is about $3,000. “They take care of themselves first, and us last.”

That means Kalmoe and her fellow athletes will be forced to row through lots of shit, competing to take home a medal, while those who run the International Olympic Committee will stay dry and clean, guaranteed to take home a large share of the surplus.