Posts Tagged ‘services’

VanishingMiddleClass2

Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

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And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

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It’s true (as I have argued many times on this blog), the number of U.S. manufacturing jobs has been declining for decades now—and they’re not coming back. Instead, they’ve been replaced (as is clear in the chart above) by service-sector jobs.

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And, not surprisingly, most new jobs (during the past year, as in recent decades) have appeared in urban centers.

But the idea that service-sector job growth in some urban centers—or “brain hubs,” as The Geography of Jobs Enrico Moretti likes to call them—is going to solve the problem of the growing gap between haves and have-nots is simply wrong.

Moretti (and, with him, Noah Smith) would have us believe that everyone in the one America that is “healthy, rich and growing” (as against the other America, which is “increasingly being left behind”) stands to benefit. And they don’t need manufacturing jobs to do so.

But looking at the wages of those workers in the local service jobs celebrated by Moretti and Smith tells a very different story. Here they are, from the Bureau of Labor Statistics:

OCCUPATION MEDIAN HOURLY WAGE
Teachers $22.70
Registered Nurses $32.45
Licensed Practical Nurses $20.76
Carpenters $20.24
Taxi Drivers $11.30

 

So, no, the growth of local service jobs in so-called brain hubs is not going to solve the problem of inequality that plagues the United States.

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Nor for that matter is Trump’s promise to return manufacturing jobs to the United States.

Neither the old nor the new geography of jobs is going to solve the problem of the growing divergence between a tiny group at the top and everyone else. The cause lies elsewhere—in the same old story of a growing surplus that is captured by large corporations and wealthy individuals.

That’s the real problem that needs to be solved.

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What is the future of work in the United States?

Daniel Little is right when he argues that companies are restructuring work—exporting jobs, lowering wages, and so on—to increase profits. And his conclusion couldn’t be more pessimistic:

This line of thought seems to have disjunctive consequences, neither of which is promising for the future of the American middle class: either companies will restructure their activities to incorporate a higher mix of high-skill workers in substantially smaller numbers; or they will continue to expand activities around a low-skill model while exercising substantial downward pressure on wages.  And this implies that employment growth will be slow, or else there will be more robust jobs growth in low-pay jobs leading to a falling standard of living for the majority of workers.

The only problem with Little’s analysis is that he places all the initiative on employers. In previous generations, workers didn’t get paid more because of their level of knowledge and skill. They managed to increase their pay because they organized into unions and forced employers to engage in collective bargaining for higher wages and benefits.

The solution, therefore, is not to return manufacturing jobs to the United States. Let’s produce services and import manufactured goods. Fine. But let’s make sure service-sector workers are organized. And, in addition, run the enterprises where they work. Those are the only ways to create “good” jobs.