
Trying to understand income inequality in the USA - pchristensen
http://www.slate.com/id/2266025/entry/2266026/
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pchristensen
I agree with <http://www.paulgraham.com/wealth.html> as the general rule for
creating wealth. My question is, is "middle-class" income and wealth simply a
function of how labor-constrained the current engine of economic growth is?
The postwar boom needed lots of workers so it was worth paying them more. The
most recent booms have been technological and IP-driven, which is why fewer
people benefited from them. Pay for the middle class is reverting back to
their marginal value of an hour of time.

(Caveat: hundreds of millions of Chinese and Indians are benefiting from the
same labor-constrained economy that the US benefited from 50 years ago. I'm
mainly talking about the US).

~~~
lukesandberg
While excess demand for laborers did contribute to the Great Compression, it
was not the only contributing factor. The actions of Unions and Wage Controls,
also played a large role. Nonetheless you have a good point.

The real question is why if productivity of the middle class is rising why
aren't their incomes also rising. It seems that the marginal distribution of
income should be somewhat related to marginal productivity changes of the
workers, but its not.

~~~
pchristensen
Business owners own the _output_ of their employees, so the improvement in
productivity goes to the owners. Employee wages are mostly determined by the
supply and demand for the _input_ of the workers. If demand is high, wages go
up, if supply is high wages go down. It's the combination of low supply and
high demand that gave workers the leverage to gain some of the increase in
their output during the Great Compression.

~~~
lukesandberg
That's true, it is up to the business owners to control their wages. But why
is this changing so much more since the mid 1970's than before, and (even more
importantly) should it be changing?

With that second question we are getting more into a philosophical question
than a purely economic one. I personally believe that additional productivity
of a worker should benefit the worker not just the employer and i also believe
that there should be institutions in place to promote and foster lower income
inequality. Addressing this as purely an effect of supply and demand ignores
the whole human component to the labor market and the vast political
instability that can be created by an ineffective labor market.

~~~
pchristensen
Business owners control wages only in the event that labor supply outstrips
demand. After the 70s, due to globalization and technology, the demand (in the
US) for modestly educated bodies dropped, while the demand for (a
comparatively smaller number of) highly educated workers increased.

When you can buy steel from China or run a car factory with robots, what do
the 20,000 workers that used to work there do? Google has ~20K employees
worldwide and it's worth $175B, the old USX steel plant on the South Side of
Chicago has 20,000 workers _within 2 square miles_. Tech companies create
jobs, but nowhere near the number that manufacturing used to.

I never mentioned whether this was a good thing or not. I think that every
person that doesn't get autonomy, complexity, and a connection between effort
and reward (worth reading the book Outliers just for that 3-item list),
society will be poorer overall. So I think that unemployment and
underemployment are huge drags on the economy, not to mention how devastating
they are to the people involved.

"I personally believe that additional productivity of a worker should benefit
the worker not just the employer" - this happens when the worker creates
unique or hard-to-replace value. I too wish everyone could do this, and it's
one of the main reasons to do a startup.

"i also believe that there should be institutions in place to promote and
foster lower income inequality." - you can argue that YC is doing this, by
teaching founders how to become richer than they would have otherwise been.
The question is if this method (teach people to create more value vs capture
value from those that create it) will scale to a whole society. I personally
doubt that, so the question is how much to take from the top, and where to set
the floor.

~~~
lukesandberg
sorry if i misinterpreted your earlier comments, it looks like we actually
share a lot of the same ideas.

I don't think that everyone in a society can generate unique value, but its
great that in our society that people who can are able to do so. So we really
need a better method than just the invisible hand of Adam Smith to solve this
problem.

Actually implementing policies to do this is incredibly complex, a lot of this
is discussed (as they mention in the article) in the book Conscience of a
Liberal by Paul Krugman. He made good arguments for raising minimum wages and
the importance of unions. I'm kind of torn on the Union issue (too much
Chicago School of Economics influence...), so i think there needs to be some
sort of modernization of the union. Especially with trends pointing towards
more and smaller companies, centralized unions don't seem to make much sense.

Livable Minimum Wages seem to make a lot of sense and at least that is more
politically tractable than setting wage maximums.

