
Understanding the Historic Divergence Between Productivity and a Worker’s Pay [pdf] - bpolania
http://s1.epi.org/files/2015/understanding-productivity-pay-divergence-final.pdf
======
nicholas73
The "historic" and "unexpected" drop in oil prices since last September taught
me a huge lesson in supply and demand elasticity. The media and analysts want
a smoking gun explanation, blaming it on the Saudis attacking frackers,
Russian geopolitics, the strong dollar, etc. But a drop to nearly 1/3 the
price cannot be explained so simply as the supply and demand difference is a
small percentage on consumption.

The way I see it is that both supply and demand are inelastic in this case, as
the world only needs so much oil at a certain time and cannot ramp up easily.
Supply is inelastic in this case because much of the production boom was
generated by highly indebted frackers. That means they have to pump and sell
no matter how low oil goes. These two factors completely kill price
rebalancing.

What does this mean for worker's pay? Simple: the effect of offshoring a few
jobs has similarly an outsized effect on the negotiation power of employees.
If there is always someone out there willing to take a job at breakeven
(paycheck to paycheck living), worker pay will never go up.

Anyone who claims it's only a few jobs or that they pay market rates for
H-1B's is either ignorant or a crook.

~~~
Swizec
> If there is always someone out there willing to take a job at breakeven
> (paycheck to paycheck living), worker pay will never go up.

Which is why you don't compete on price, but on service. If you can do for the
business what other people cannot, your pay will keep going up and to the
right for as long as you want.

Mind you, this could be as easy as rephrasing "I know Ruby" to "I use Ruby to
increase revenue".

For instance, I am right now hiring a copy editor. I've spoken to plenty of
people with a variety of hourly rates. Some said "I am really good at grammar
and I am diligent and very detail oriented". Some people said "I can make your
writing clearer".

Who do you think I liked more?

~~~
rch
It's not that big a deal which candidate you like, since any of them will
accept a figure within 1 or 2 standard deviations of average pay for the role.
Which is kinda the point...

------
WalterBright
This is written by an advocacy group, as disclosed on the first page of the
pdf.

Anyway, consider the following scenario. Bob makes $10 an hour, and produces
$100 of value. Obviously, this is a great bargain for Bob's employer. So much
so, that another employer should be perfectly willing to offer Bob $11 to lure
him away. Another sweetens it to $12 and Bob moves again. Rinse, repeat until
Bob is making $100 minus the opportunity cost.

What that suggests is that a large gap between compensation and productivity
is unstable, as large forces will be at work to shrink that gap. So why is
inequality happening?

I suspect that productivity simply isn't increasing for a lot of jobs. Such as
janitorial services - there's no automation there, the janitor with a mop and
a bucket is doing the same thing he's done for decades.

The rise of computers and the internet, on the other hand, have caused the
productivity of other jobs to soar enormously. For example, slightly improving
the speed of the operation of a server farm can produce millions of dollars in
value. I would expect that workers who can do that will be highly compensated
for such value produced.

In other words, there's a growing inequality in the productivity of different
kinds of jobs.

~~~
sokoloff
Bob's upward spiral of salary only works so long as there aren't a bunch of
equally qualified Abel, Charlie, Dave, Ed, Frank, and George. If employer 2
needs someone to create that value and can pick amongst 10 employees, the
salary of the job will not tend towards $100/hr.

~~~
WalterBright
A huge moneymaking opportunity in making 10x on investment in employees
suggests that new employers will emerge to exploit it. Investment flows to
where the money to be made is.

Unless, of course, they manage to keep Bob's productivity a secret, which is
possible in the small but highly unlikely over an entire economy.

~~~
jdmichal
You said yourself in another post that you cannot assume that the productivity
gains seen are evenly distributed. So I would propose that there is definitely
an informational advantage for the company that currently employs Bob, because
they know how much value Bob produces over his cost. How is another company
supposed to gain this information, short of hiring Bob and finding out
themselves? In which case, they rationally can really only be willing to pay
Bob at some sort of _expected average_ productivity.

The only information leak is how much Bob is currently paid. So in some ways
it's actually to a company's advantage to basically average out the wages
across a level based on the level's entire productivity, because it hides the
truly productive from other companies. And this is exactly what we see with
modern pay grades and scales.

------
Animats
What is an employee worth, as an economic unit? In the absence of a labor
shortage or non-economic forces, it's just maintenance and education cost. A
dorm in Shentzen, some food, and training programs. The maintenance cost on
humans hasn't increased much in recent years. Why should wages ever go up?

Rising wages means that people are being paid more than they're worth as an
economic unit. Unless you're willing to take the position that people should
be paid more than they're worth, you can't expect wages to rise.

Unions once explicitly took that position. A century ago, when Samuel Gompers
was asked what he wanted for his union members, he answered "More". That's
really what unions are for. In the 1950s and 1960s, not only did unions take
that position, many manufacturing companies had come around to agree with it.
It was a basic bargaining position in UAW negotiations of that era that wages
must rise with productivity. The auto companies went along with this. That
drove wages up across the US.

That ended in the 1970s. It was the result of explicit policy decisions.[1]
Ronald Reagan is called the "Great Communicator" because he was able to sell
some of those policies.

[1]
[http://www.h-net.org/reviews/showrev.php?id=35277](http://www.h-net.org/reviews/showrev.php?id=35277)

~~~
WalterBright
> What is an employee worth, as an economic unit?

The value that he can add to the business.

------
pyrox420
Can someone explain what happened in 1973 that would cause such a divergent
trend?

~~~
WalterBright
See my other post here. In a word, automation.

~~~
api
Automation is a minor factor _so far_ compared with outsourcing.

