Posts Tagged ‘wages’


Clearly, 2016 was a good year for CEOs. They’re on track to set a post-recession record for capturing their portion of the surplus.

According to a new Wall Street Journal analysis, median pay for the chief executives of 104 of the biggest American companies rose 6.8 percent for fiscal 2016—to $11.5 million. At the very top was Thomas Rutledge, CEO of Charter Communications, who took home $98.5 million last year. (Here’s a link to the compensation of the other CEOs in the study.)

By way of comparison (using data from the Bureau of Labor Statistics), average wages for production and nonsupervisory workers rose 2.5 percent, to $21.86. And their annual pay rose by the same percentage, to $36,725.

If you’re keeping track, that means the ratio of average CEO to average worker pay in 2016 was 299.5!


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.

productivity top1

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.

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.

fredgraph (2)

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.



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:

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.


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.


Donald Trump promised to bring back “good” manufacturing jobs to American workers. So did Hillary Clinton.

Both, as I argued back in December, were wrong.

What neither candidate was willing to acknowledge is that, while manufacturing output was already on the rebound after the Great Recession, the jobs weren’t going to come back.

They were also wrong, as I argued in November, about there being anything necessarily good about factory jobs.

But perhaps even more important, as Eduardo Porter reminds us, the focus on manufacturing deflects attention from what is really going on in U.S. workplaces.

the vast outsourcing of many tasks — including running the cafeteria, building maintenance and security — to low-margin, low-wage subcontractors within the United States.

This reorganization of employment is playing a big role in keeping a lid on wages — and in driving income inequality — across a much broader swath of the economy than globalization can account for.


And, according to a recent study by the Government Accountability Office, much of that outsourcing is taking place outside the manufacturing sector. Moreover, the growth of contingent work—for example, 17.3 percent in education services and 6.1 percent in professional/technical services—is accompanied by lower wages, fewer benefits, and more job instability.

The problem in the United States is not what workers do or what they produce. It’s how they do what they do.

Employers, not workers, are the ones who decide how labor is performed. And when they can outsource jobs to contractors—and, as a result, avoid unions, workplace regulations, and adequate pay and benefits—they can exercise even more power over their workers, including of course the ones they continue to employ.

That, and not the loss of manufacturing jobs to foreign companies, is the real problem facing the American working-class.

Save this!

Posted: 27 February 2017 in Uncategorized
Tags: , , , ,


Setting aside enough of the surplus to support workers who have retired is one of the basic tasks any society faces.

Clearly, the United States is failing at that one simple task.

Yes, Americans do have Social Security. But, at an average monthly payment of $1,360 in 2017, it’s obviously not enough.

That’s why American workers are forced to have the freedom to come up with their own savings for retirement. And most are finding it difficult, if not impossible.

Overall, only one-third of American workers are saving anything in a workplace retirement account.

One reason is because, according to a recent study, only 2 out of 5 employees with access to 401(k)s and other defined-contribution retirement saving plans are actually using them. They simply aren’t being paid enough to buy what they need for themselves and their families and, at the same time, to put away money for retirement.

It’s no coincidence that the Census analysis found Americans with higher incomes were more likely to be socking money away for their old age. That dovetails with other data, such as the Federal Reserve’s annual survey on household finances, which found that almost 9 out of 10 Americans with more than $100,000 in annual income have a 401(k), compared with just four out of 10 earning less than $40,000.

The other reason is only 14 percent of companies actually offer these types of retirement plans, far lower than previous estimates.

The low percentage of employers that offer 401(k)s was especially noteworthy, [retirement specialist Arielle] O’Shea said, since previous estimates pegged the number at about 40 percent. “That is a significant problem,” she said.

Yes, indeed, that is a problem. Fourteen percent instead of 40 percent.*

The combined effect is that two-thirds of American workers are simply unable to save enough to fund their own retirements. They will have spent most of their lives working—and then they will struggle to stop working and enjoy their retirement.

Contrary to the advice of countless retirement specialists and politicians, who exhort American workers to tighten their belts and increase their savings, they’re not the ones who have failed. It’s a system that keeps workers’ pay in check and yet relies on their finding a way to accumulate individual savings—it’s that system that has failed American workers.

As I see it, the system that relies on individual decisions to save for retirement can’t be saved. Instead, it should be retired. And then replaced by the obvious alternative: transferring a portion of the growing surplus to workers when they retire. Such a system would be able to provide more generous benefits, starting at an earlier age—exactly what is need right now.

We can even give that system a name. Let’s call it Social Security 2.0.


*Now, it’s true, larger employers are more likely to offer 401(k)-style plans than smaller ones. So, 79 percent of Americans do in fact work at places that sponsor retirement plans. The problem is just 41 percent of those workers are making contributions to such a plan—more than 20 points lower than previous estimates.


In his Prison Notebooks, Antonio Gramsci wrote: “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum morbid phenomena of the most varied kind come to pass.”*

The world is once again living an interregnum. It is poised between the failed economic model of recovery from the crash of 2007-08 and the birth of a new model, one that would actually work for the majority of Americans.**

Morbid symptoms abound, including slow economic growth, persistent poverty, and obscene levels of inequality. Perhaps even more significant, especially at this point in the so-called recovery, when according to mainstream economists and policymakers full employment has been achieved, workers’ wages are actually declining.

According to the latest release from the Bureau of Labor Statistics (pdf), both real average hourly and weekly earnings for production and nonsupervisory employees decreased 0.4 percent from December to January. And, over the course of the past year (January 2016 to January 2017), real average hourly earnings for all employees failed to increase (remaining at $10.65 (in constant 1982-1984 dollars) and real weekly earnings actually decreased by 0.4 percent (from $368.66 to $366.32).

That’s what happened under the last administration, based on an economic model that is dying. And there’s nothing in the new administration’s proposed economic policies that promise any better. In fact, the likelihood is that things will stay the same or get even worse for most American workers in the next four years.

Only large corporations and wealthy individuals will likely gain from promised changes in business regulations and tax policies.

That’s a scenario that pretty much guarantees the appearance of even more morbid symptoms in this interregnum.


*The passage is from Notebook 3 (pp. 32-33), written in 1930, which appears in the second volume of the English edition of the full Prison Notebooks, edited and translated by Joseph A. Buttigieg.

**Nicholas Eberstedt [ht: bg], of the American Enterprise Institute, argues the current model failed around the turn of the century, with warning signs even earlier: “For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly.” David Brooks, as it turns out, concurs.