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Wage Stagnation (slatestarcodex.com)
259 points by myle 27 days ago | hide | past | web | favorite | 257 comments

Real wages haven't increased since 1970.

We only feel richer because:

* Most households have two wage earners now.

* We use lines of credit to borrow for discretionary purchases, we lease cars, pay by subscription for things more.

* We have more gadgets. (Note that this has been proven to make people any happier.)

This is false. [1] Real income has doubled since 1970 for individuals. I'm not sure why so many people seem to think that, I'm constantly having to reply to posts like this on HN and Reddit with real data but a lot of people just go along with it even though the people that post these claims never substantiate it with data.

I think there must be a psychological factor that makes people feel good about how our generation has it so hard? I would truly appreciate if someone could explain why.


The general claim about 'Real Wage' stagnation is based on the median of full time workers. There is data for this in your link:

Men: 51,885 (1970) => 55,834 (2017), a 7.6% increase

Women: 30,733 (1970) => 44,379 (2017), a 41% increase

Also note that this data is using CPI-U-RS adjustment instead of CPI which is what is normally used for 'Real Wages'. There is some debate over the accuracy of CPI-U-RS, but it's worth noting that it's not directly calculated prior to 1978 so becomes more questionable. Comparing to 1978 your numbers are basically equal to 2017 income for men. For women there is still significant growth but I think it's hard to draw any conclusions since a very large number of women entered the full time workforce and took on higher level positions between 1970 and 2017.

I'm assuming you are getting 'doubled' by reading the per capita income data which is not a particularly accurate way to look at this. That is just taking the sum of the total income and dividing by the US population, i.e. it's a mean not a median. It's going to be skewed by high income individuals and also by the nature of labor force participation.

It would be interesting to see a graph over median wage similar to the one in the article, but with separate lines per gender.

> very large number of women entered the full time workforce and took on higher level positions between 1970 and 2017

If we look at US numbers that actually not the case. As I wrote in an other comment, between 1940 and 1970 it doubled from around 25% to around 50%, but from 1970 to 2017 it only went up to current 55%. It actually went down from 2000 which topped at 59%.

> If we look at US numbers that actually not the case. As I wrote in an other comment, between 1940 and 1970 it doubled from around 25% to around 50%, but from 1970 to 2017 it only went up to current 55%. It actually went down from 2000 which topped at 59%.

Using the data source provided from the post I replied to (table P-36) the number of full time, year-round workers looks like this:

Men: 36.1M (1970) => 66.4M (2017) increase of 84%

Women: 15.5M (1970) => 44.4M (2017) increase of 186%

So within this group we went from ~30% female to ~40% female and I would venture that the types of employment accessible to women in this time frame has also expanded quite a bit, though I have no immediate data handy to back this up.

Without digging into your numbers, I suspect they may come from total labor force participation which is a notably different metric.

Interesting. So, if women entered the workforce in greater numbers after 1970, and the median wage for women was lower, wouldn't that drag down the median for all workers? That is, if you took a population of the same percentage of women workers as you had in 1970, what would happen to the median wage in 2017?

Note well: This is not a plea for keeping women out of the workforce, or even out of the statistics. This is not an excuse for paying women less than men. This is merely noting that, in one respect, the comparison of 2017 to 1970 is not apples to apples.

Maybe you would have more luck if you cited better sources. I clicked on your link and just got a page of dozens of Excel files. Which one are you referring to?

On P7, it says median income in 2017 was $31,786. In 1974 (as far back as the data goes), median income in 2017 dollars was $23,984.

That's only a 32.5% increase, not 100% like you claim.

I believe they were using p1 which has the more general data.

2017 per capita income was 34,489

1970 per capita was 17,948 in 2017 dollars.

Per capita income doesn’t tell you about what went to generic “workers”. Nearly all of the income increase has gone to the top, and a higher percentage of adults are working now (most women have formal work now).

The US uses a median figure for per capita income statistics. So this increase isn't attributable to the top end.

It is true that relatively more money has gone to higher earners. As evidenced by the ratio of mean to median increasing over that time period.

I'm not really sure what you mean by a generic worker.

> The US uses a median figure for per capita income statistics

Do you have reference for this claim? That really wouldn’t make any sense. The appropriate technical term for median income is “median income”. “Per capita” always implies total divided by population, i.e. the mean.

Here is the US Census’s definition: https://www.census.gov/quickfacts/fact/note/US/INC910217

> Definition

> Per capita income is the mean income computed for every man, woman, and child in a particular group including those living in group quarters. It is derived by dividing the aggregate income of a particular group by the total population in that group.

Because medical costs, schooling costs, real housing costs etc, etc, etc have far more than doubled: merely adjusting for inflation is completely unrelated to change in cost of living.

It's like converting a bank account to Lira and thinking it makes you richer.

Everything you mentioned is included in CPI (consumer price index): https://www.investopedia.com/terms/c/consumerpriceindex.asp. CPI and PPI are the two components the Fed uses to measure inflation.

Interests rates are lower, so the sticker prices on tuition and housing and -- to some degree -- medical expenses are higher.

But how does CPI measure these things? It takes EVERYONE'S mortgage payments (which don't change anywhere near as much as sticker prices), lumps them together, and then takes the average. This makes sense. Mortgage payments (and rent) make up a huge percentage of most American's monthly payments.

Sticker prices on houses don't.

Inflation isn't meant to measure if things are getting more expensive for new homeowners (or any subset of the population). It's meant to measure if prices are increasing for the country as a whole. Just because houses cost double today what they did 8 years ago, it doesn't mean EVERYONE is paying double for housing.

If you took the sticker prices on houses (which is largely meaningless -- very few people buy houses in cash), this would be a metric that made people struggling to buy a house feel good. But it wouldn't help the Fed in anyway do its job of maintaining a steady rate of inflation so that we have a stable environment to invest in / allocate capital efficiently and effectively.

Yes, something needs to be done about housing market cycles and how much damage they cause to the economy. But putting sticker prices in inflation is not the solution.

I'm not positive how tuition is factored into CPI -- but I'm pretty certain it's a function of your loan payments.

The medical industry is batshit insane in this country, and I have absolutely no idea how this is measured. The only way I can think is that it's a function of how much you and your insurance pay for a bill. The sticker price on medical expenses is basically a made up number.

Although the CPI may need tweaks since it currently has a strange way of calculating housing calculations: not mortgage payments but rental of equivalent property, I still assume the CPI is fairly useful for guiding policy as is.

The problem is the grand-parent-post's use of this number to claim it indicates almost everyone, or at least "the typical person" is twice as well off now as 1973. And worse, doing so implies nothing needs to be fixed.

>Yes, something needs to be done about housing market cycles and how much damage they cause to the economy.

Housing market cycles do harm without fixing the underlying problem. They disrupt the larger economy but only shave of 10%-20% of home prices and then only temporarily. This failure to reduce housing costs is a problem.

Consider that in 1970 with a 30 year fixed at 8%, home prices sat at 65,000 adjusted for inflation. Rates were near double that in 80's yet, adjusted for inflation, homes were over 90k. Today, with about 4% interest, median price exceeds 250,000. Evidently total housing costs exceed wage and inflation over time. Evidently prices do not genuinely cycle. Evidently interest (our sole economic tool now) does not affect this overall trend.

So the issue arises in a generation or two. It seems there is magical thinking that history is over and this will just take care of itself and that mass ownership of land is somehow an inevitable law of nature. It seems more likely that the last 80 years were a fluke requiring careful maintenance which has ended.

>sticker prices on houses (which is largely meaningless -- very few people buy houses in cash)

The sticker price of a home directly relates to financed cost as well as cash.

Also bills for things that didn't used to exist: Internet, Cellphone, Cable/satellite tv, etc.

Not that those aren't luxuries, but for the most part they are considered to be part and parcel of modern living. California has free cellphones for poor people because it's considered a necessity.

Cable TV is certainly not a requirement for modern living, if fact its dying.

Cell / Internet I would agree are general requirements in the modern world for the most part. But it's also important to understand their impact on quality of life. There is a hugely understated value in the fact that an individual can have access to almost the entire knowledge base of humanity in the palm of their hand, and it's damn cheap for what it is. The closest comparison in 1970 would have been a full encyclopedia set which were actually pretty comparable in cost to a phone/laptop + internet service, yet obviously far more limited.

I know people who get by with only Cell. That's not enough for me (in fact I've gone through periods where I had internet but no cell), but I've seen people who make it work. It's a bit easier if you have a library nearby, or mainly only consume media, not produce it.

No, you're misreading the data. Comparing GDP, household incomes, real wages, total compensation, and household incomes is a non-trivial activity - it's easy to compare two numbers which are not actually directly comparable. Plus you have long-term factors such as an aging population, changing workforce participation, a shift from employers increasing wages to increasing benefits, and a larger share of wages going to the top 1% at the expense of everyone else. Combine that with increases in living costs which are typically not included in the measure of inflation, e.g. housing, and you've got a complex piece of data analysis to grapple with.

If you want to do a simple but meaningful ballpark comparison, compare total compensation with GDP [1]. It decreased by 4.5% from 1970 to 2016, meaning that workers are taking home a slightly smaller share of the "real" economy. Now recall that many costs have increased above the rate of inflation, e.g. housing, medical, education, so that money doesn't go as far as it used to.

[1] https://en.wikipedia.org/wiki/Household_income_in_the_United...

Well, is there a psychological factor that makes people disregard observable reality and seek fake safety in numbers?

The census data don't show anything of the kind of "doubling" for the average american.

The table is "per capita". And even at that, it doesn't take into account the cost of college, house, services, etc. relative to 1970s.



Especially relevant here, since if all the income went to a single person, and everyone else was reduced to living under bridges, the average wage would stay the same.

Because a certain breed of politicians do a great disservice to the public by straight-up lying and deceiving the public.

``` In a country where no law can be voted, where no tax can be imposed, but with the consent of those whose dealings the law is to regulate, and whose pockets the tax is to affect, the public cannot be robbed without first being imposed on and misled. Our ignorance is the raw material of every extortion from which we suffer, and we may be certain beforehand that every fallacy is the precursor of an act of plunder. ```

> * Most households have two wage earners now.

Fully 28% of households now have just one person living in them, more than double the rate from 1960 (13%), reports the US Census Bureau. As a result of continued shifts in household types and family dynamics, the average household size is 2.53 this year, down from 3.3 some 50 years ago.

Single person households aren’t just restricted to youth. In fact, almost one-third (29%) of adults aged 65 and older live alone. In a fairly dramatic shift, householders aged 65 and older outnumber those under the age of 30 by almost a 2:1 ratio (31 million and 15.8 million, respectively), whereas these householders had been at virtual parity in the late 1970s. (Households are occupied housing units, and householders are the people in whose name the housing units is rented or owned. They must be at least 15 years of age.)

* We use lines of credit to borrow for discretionary purchases, we lease cars, pay by subscription for things more.

I don't see whats wrong with this. Availability of credit has helped a lot. For instance, mortgages used to have much higher interest rates and shorter term

> * We have more gadgets. (Note that this has been proven to make people any happier.)

I thought we were talking about wages not happiness. What's the point of wages if you don't have access to goods?


Credit has largely been the best thing to happen in the world. But lower interest rates have not made housing more affordable. Neither have longer terms. Both of these things, in the long run, just make build-able land more expensive -- which keeps the mortgage payment / income ratio pretty constant in the long run.

Obviously Real Estate is highly cyclical. So you can look at any two points in time and make conclusions like low interest rates or longer terms are great for affordability. But if you look over the long run, it's just not the case.

Land price is a function of interest rates, taxes, lending standards, purchasing power, and speculation -- there are no inputs like with a refrigerator. And land is not a commodity in the same vein as, say, corn. If the demand for corn goes up, people grow more corn. If the demand for land goes up, VERY RARELY do we make more land.

There's a real split in goods and service prices where certain classes of goods have risen incredibly (Healthcare and College) and others have fallen (computers and TVs).

Check out this chart to get a sense of it: http://www.aei.org/publication/chart-of-the-day-or-century/

Another factor: The Immigration Act of 1965 significantly increased the amount of labor immigrating to the country


This is a prime example of the Lump of Labor fallacy. https://en.wikipedia.org/wiki/Lump_of_labour_fallacy

Our best studies have shown immigration increases overall welfare. The Mariel Boatlift studies are a good example of this: https://www.jstor.org/stable/2523702?seq=1#page_scan_tab_con...

I never understood this argument. More people in the country obviously leads to more labor supply but also more labor demand.

Rate of immigration past a certain threshold has been shown to suppress wages.

"a migration-induced shift of 10% in the supply of labour is associated with a 3% to 4% movement of wages in the opposite direction"


If your supply is perpetually exceeding demand it sets that precedent. Neo-classical touters like to imagine an influx leading to new job creation: a) this is not necessarily true, b) if it is, it can be a slow process, c) if it is, it may not lead to a sufficient rate of job creation, d) companies are absorbing each other and wealth is concentrating at too high a rate. Growth will stagnate and we'll see a new era of "old money", just as it was before the world wars. And, we're dealing with the effects of automation to boot eroding jobs faster than new ones are replacing them. Just remember that what's good for the GDP is good for the rich, not necessarily workers.

Wages would go lower but goods will be higher. If an immigrant worker produces more than he consumes, the whole is richer, no way to cut that into an unfavorable calculation.

We get more goods with fewer and fewer people in assembly and we're no better off for it as far as structural inequality is concerned. I would check the assumption that a cheap immigrant worker would increase productivity at all.

Again, if the immigrant produces more than he consumes, the whole is richer. The arguments against that calculation would be that you dont like who benefts on that, but the whole is better.

You're referring to GDP increase. I already addressed this. The rest of us aren't seeing the benefits as we should. It's short-sighted.

The extra supply is balanced by the extra demand only if exports are zero. I.e. demand for Apple devices won't increase by 10% if the US population grows by 10%. And of course making 10% more rarely requires 10% more workers - you need more on the assembly line, but not more to design the items.

Those are points I hadn't considered, but what in the US, net exports are negative. Wouldn't that imply the converse effect to what you're describing?

It wouldn't. Say someone in the US buys something made in China - how does that increase demand for labor in the US? There's some marginal US labor required for the last part of the transport, but that's it.

Thee last part of the transport is not marginal in the real world. Increased local consumption drives transport, retail, marketing, etc. etc. Real life economic modeling is not a simple supply/demand, widgets made/sold chart.

The person pays for the good in US dollars. Where do those dollars go? The Chinese people who now have USD either spend or invest them back in the US.

Most of the dollars go as profit for the multi nationals. The remaining (very minimal) goes to the contract manufacturers.

Though thanks to the bigger market the prices can actually decrease, so living standards could increase, even if wages haven't.

Only if they wouldn't have bought it if they hadn't moved to the US.

This is a rather poor argument. US exports in total are only ~13% of GDP. The trade deficit is only ~2 or 3% of GDP. That's a tiny secondary effect.

Not if income inequality means only a small pool of incumbents is able to demand!

Women also doubled their laborforce participation rate from 30% to 60%.


How does this lead to wage stagnation? You've stated a potential piece of evidence but provided no reasoning to link to your (implicit) claim that immigration leads to stagnant wages. If that's not your claim, feel free to fill out the details.

Arguments have CER - claim, evidence, reasoning. Your comment was missing two.

It's pretty obvious he meant that wages were suppressed due to supply and demand, where the immigration act increased the supply of labor. If you'd like proof of the act doing just that: https://www.migrationpolicy.org/programs/data-hub/charts/imm...

Is that obvious that's what they meant? I understood it to mean that immigrants tend to earn less (I don't have this data myself), and could drag the average down. In that case the overall average real wage could stagnate while the average real wage of every cohort increased.

I don't think people need to spell out supply and demand every time they indicate that increasing the supply of something brings down prices.

In other words: yes, it is obvious.

The thing is, though, that while immigrants increase the supply of labor they're also consumers who increase the demand for labor. That's why you don't tend to see wages go down after exogenous immigration shocks like the Cuban boat lift in Miami. Well, non-English-speaking immigrants do actually tend to depress the wages of resident non-English-speakers somewhat but not the wages of English-speakers.

>The thing is, though, that while immigrants increase the supply of labor they're also consumers who increase the demand for labor.

Unless there is an increase in productivity, which if you read the article, would be apparent.

That is increase the labor supply while simultaneously increasing labor productivity and you will see a real drop in demand for laborers which is naturally going to result in a stagnation of wages. That is the extra demand created by the wave of low wage immigrants is more than made up with the increases in productivity in that same time period. Now you have a macro economy much more efficient at concentrating wealth.

How much immigrants are paid is primarily a function of how many immigrants are in the labor pool. They tend to earn less because there’s a virtually unlimited supply of poor people who want to immigrate. Supply and demand impacts markets for labor, that’s just basic economics.

> Note that this has been proven to make people any happier.

s/Note/Not/? Or are you missing a "not" somewhere else?

Sorry yes, you are right, I had a typo in there. I was trying to say that more gadgets have NOT been proven to make anyone happier.

We also have bullshit jobs. Take a look around you and see the proliferation of pointless jobs. In the office there are plenty of them, within the world of internet development there are plenty of them. Out in town there are plenty of them. You can feel richer just because your job adds to the bottom line instead of costing the bottom line, you are therefore not with a bullshit job, therefore you feel richer than that temp who muddles through data that really needs just one SQL query to make proper sense of.

For a reality check it sometimes helps to think how you used to live in the past. Maybe you spent $$$ on a hobby every week, had a fleet of vehicles, went on holidays, had spare rooms in your house. Or maybe you had friends that had all these things and worked a job where they were back home by six every day.


>...Real wages haven't increased since 1970.

From the data from the Fed, this is only partially true if you ignore non-cash compensation:

>...A job usually also involves other types of compensation, such as the employer’s contribution to retirement pensions, health and life insurance, paid vacation and other leave, and any taxes the employer pays on these benefits. These benefits are now a substantial part of the cost of an employee, and they appear to be growing. The top graph shows that labor compensation growth is frequently higher than real wage growth. We can make this point more clearly by using index values: In the bottom graph, we set both series at 100 in 1970 and let them run. Real compensation growth is significantly higher: the 60% increase looks much better than the 3% increase for real wages.


This is probably a better explanation for how wages have grown. The biggest problem is healthcare costs have grown too.


> Note that this has been proven to make people any happier.

Requests for citation are a little gauche, but if you tell me something is proven without any evidence you're kind of forcing my hand here.

The rest of your comment could probably do with more rigor as well. Can you quantify exactly how many more households have dual earners now? Likewise do you have any numbers pertaining to lease versus purchase statistics between 1970 and 2018?

Sorry, I had an unfortunate typo in my comment which inverted the intended meaning.

I was trying to say: Not that [gadgets] has been proven to make people any happier.

And the support I would be inclined to give for that is the: https://en.wikipedia.org/wiki/Hedonic_treadmill

By the late 1950s most households had washing machines and gas or electric stoves furnaces and water heaters (the old versions of these were coal or wood fired and required refilling) and most of the drudgery was eliminated from household chores.

This did, in my opinion, increased quality of life significantly.

However, I'm not sure much was gained in terms of happiness from going from Black and White TVs to 4K televisions with PVRs.

Pretty much the same entertainment value could be gotten from a back and white TV as with a hi def set. You could watch the hockey game on either, and the experience was basically the same.

As for my claims about real wages not having risen since 1970, other commenters have done a better job of defending that claim. (mbell for example)

I think that there's a typo, and it meant to say "not that this has been proven..." Still not a documented assertion, but it's kind of a negative statement that's hard to prove one way or the other. It's believable that we've simply become hedonically accustomed to gadgets that made us happy to get, and would be unhappy to lose, without actually contributing to an overall increase in happiness -- but that's hard to quantify.

I'm sure people have tried, and such attempts should be cited, but it doesn't seem unlikely.

Well, there's been a constant inflation which shows a significant increase in wealth. If someone was earning 500$/month in 1970 for some job and is making 1500$ today for the same job, that person's salary potentially increased 3 times. It probably isn't really be technically the case, but there is definitely some of that which makes us feel richer (because we are).

The problem here is that the comparison is between median wages and total productivity, without demonstrating that the median worker is in any way responsible for the increased productivity.

If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

I'm not necessarily saying they aren't, just that such an argument should be made explicitly.

Rather than being an ethical or moral question of whether they "deserve" (i.e., they're only deserving of it if they are directly responsible for it) a better wage or not, why not just look at it like an indicator that the overall economy might be becoming less healthy?

A low-income earner is more likely put any extra money they acquire towards the local economy rather than, for example, lodging it in the Cayman Islands for storage. This is good for keeping the local economy healthy, from which may come the next person to create a technological breakthrough.

We generally want the median person to have money to spend with our businesses rather than slowly edging towards living in a slum.

> why not just look at it like an indicator that the overall economy might be becoming less healthy?

Because it isn’t. We have other indicators for that and GDP growth is one of them. Median wages are affected by so many factors that they invalidate such conclusions. Also, wages aren’t the only money available for spending, there‘s capital income too.

Low-income earners probably don't have much capital income that they could spend on the local economy.

The modern equivalent of "let them eat cake."

Let's not resort to such vage speculation. Low-income earners definitely have more to spend than unemployed people and unemployment is rather low right now in the USA.

The point wasn't particularly about a person with $1 having more resources than the person with $0, but how healthy the local businesses in an area are given how many dollars are in circulation around it, and what the trend of this looks like. That is, in the medium-to-micro, not in the macro economics.

Anyone who has ever had a body is probably familiar with the concept of the whole seeming OK, while there's something unhealthy happening in the small. I'm not rejecting other metrics, but I don't think this is irrelevant to the economy at large.

The comment you're replying to pointed out that the absence of a wage or presence of a low wage probably does not correlate with an equivalent amount of passive income for the vast majority.

You reject this and call it "vague speculation", for which I assume that the alternative theory is that there's a substantial majority of passive income earners at the bottom of society. It's an interesting theory.

> You reject this and call it "vague speculation", for which I assume that the alternative theory is that there's a substantial majority of passive income earners at the bottom of society. It's an interesting theory.

It's possible. More economically savvy people = more early retirees. Higher rents could also be a factor (some people might be able to sustain their families with previously worthless property and low wages). Let's not call these people "bottom of society" though. I know a few with 0 wages and 7 figure capital incomes.

Something like 40% of Americans have zero savings and would be ruined by a medium health emergency or unexpected car repair. What are you talking about.

Yet GDP is a terrible indicator for health of an economy, at least as bad as basing it on wages.

So I guess the question is are we measuring economy in the context of human beings or human beings in the context of economy?

Can anyone be said to be responsible for the increase in productivity? It's probably largely a matter of increased technology and automation, as well as cultural improvements like the way we work and organise work. These are mostly collective efforts.

Sure you can point to any individual employee and declare "you didn't invent or buy that computer that makes you work more efficiently, so why should you get more money?", but the CEO or shareholders didn't invent the computer either, and buying a PC is a fairly small expense, so why should they be the ones to benefit from the increased productivity?

Because they hold power and the regular employee doesn't. I think that's the only real explanation for this discrepancy: CEOs and shareholders have power, while the regular employee doesn't, and that power imbalance means more money goes to the CEO and shareholders.

> Sure you can point to any individual employee and declare "you didn't invent or buy that computer that makes you work more efficiently, so why should you get more money?"

It's less about that as it is about your three remaining employees being rewarded handsomely for the highly productive work they do on their computers, but the seven who you let go and who now work at Walmart are no longer paid wages that are coupled to that increased productivity.

Wages are not correlated to productivity in the slightest. Productivity simply establishes a floor on wage levels.

And that's the core of the problem. Wages used to go up with productivity, but not anymore. Plenty of money is being made, it just doesn't end up in the wages of regular employees.

A couple of years I came across a claim that compared to 50 years ago, the ratio between a CEO's salary than that of a regular employee of the same company, has shot up by one or two orders of magnitude. CEOs make way more than they used to, regular employees don't.

Yeah, it's clearly relative power and competition that determines wage level, not productivity.

Sorry there is a huge causal relationship if not the only reason. Wealth is not relative dollars but purchasing power. In a system where a hat maker and a shoe maker double their production, they respectively see no "wage increase" but they are both twice as rich.

Productivity -> more goods/services -> richer society, wages be damned.

> the CEO or shareholders didn't invent the computer either, and buying a PC is a fairly small expense, so why should they be the ones to benefit from the increased productivity?

Because the company owns the computer, and the work done by it. The employee is paid to do that work, and the CEO is paid to do their work. The company (and the market) decides what they are willing to pay the CEO, the worker, and the share holders, and each of those parties agrees to it. These are not slaves, none of these people are forced into these agreements against their will.

> Because they hold power and the regular employee doesn't. I think that's the only real explanation for this discrepancy: CEOs and shareholders have power, while the regular employee doesn't, and that power imbalance means more money goes to the CEO and shareholders.

Or because they are worth less in the market than the CEO is. What those parties have is "leverage" and "marketability" and "ownership", not some evil "power" construct. Ownership is available to general employees in a co-op, and people are free to join them, or start their own companies. If they choose not to, that's their choice.

The issue is not that CEOs make more money than regular workers. Of course they do. But CEO salaries and bonuses have exploded, while regular worker salaries have stagnated.

If that's not enough to tell you something wrong, then consider that even failing CEOs, CEOs of companies going bankrupt or in other kinds of trouble, still get multi-million dollar bonuses.

It really is power. You can call that power "leverage" or "ownership", but it's still power that regular workers don't have.

At the extreme end, people will revolt. When those in power push to far, the workers will violently protest. Just crack open a history book.

Shall we also discuss how much of other people's work capital is 'entitled' to?

E.g Uber's executives are very well compensated, and are nothing but middle-men. Middle-men that are easily replaced, as demonstrated by the Uber clones in cities that banned Uber.

Uber's executives rely on:

- the rule of law and a court system that allow VC's and others to sign billion dollar contracts with only minor fears of being cheated

- a large supply of underemployed people rich enough to own a car, but desperate enough to cash in the depreciation by driving for Uber

- a massive public road system

- a market

- and much more.

For all of this, they pay very close to nothing as their income is mostly capital gains.

It's very strange for you to argue that executives pay mostly income tax. From the perspective of a corporation, their main concern is paying corporate tax. The people who own the shares then make gains from capital gains.

Uber is a growth company, so we can expect that corporate tax has little effect on them, for the simple reason that they're not making much money (by design). Still, their capitalization has some notion of corporate tax baked into it, because if they become a giant and start returning earnings to owners, then this will be impacted by corporate tax.

I don't like that we have this complicated system of double-taxing corporate earnings at lower rates, as opposed to taxing earnings as income for the owners of the company. I know that many companies find ways to skirt corporate tax... but not all, and not really the majority (but preferentially the huge companies). I also know that the combination of these two taxes may not total to what the individual owners would have otherwise paid if the earnings had been ordinary income. Still... it's not as simple as "capital gains".

"...many companies find ways to skirt corporate tax... but not all, and not really the majority (but preferentially the huge companies)"

So that's basically the case for progressive corporate tax. Everyone acknowledges that small/medium business pay the full tax rate, while large/huge corps always never anything close to it. With progressive taxation you can directly impact the latter and not the former.

Why tax productivity at all? A land value tax redistributes gains in productivity to the government in the form of tax levied on the value of land - the value of the improvements on the land.

if they're as easily replaced as you say, they won't be very well compensated for long.

'Easily' in terms of labor. But it was only possible to create an opening for that labor with the use of law - i.e. collective action. Just like how FAT32 is also easily replaced, yet Microsoft reaped patent profits from it for decades. There are countless other such parasites.

It seems pretty naive to think these market mechanisms are the primary factors affecting wages. Maybe this is the case in the US, certainly not in Europe. Otherwise teachers and caregivers would earn at least as much as engineers.

Top managers wages are completely fictitious. Investors generally don't care though, since it is basically nothing compared to turnover as a whole.

In the US there’s an excess of teachers (unsure about caregivers) and it seems the market forces are expectedly causing low salaries.

I believe as an American I’m missing some important context to understand this comment.

Context: A lot of countries in Europe have problems filling positions with teachers and caregivers, because younger people tend to evade these careers because of bad economic conditions and huge workloads.

I would say that is still market mechanisms affecting wages.

The purchasers (taxpayers) are not willing to pay sufficient wages in order to incentivize [the right] people to pursue it as a career.

It's my opinion that taxpayers are the worst people to drive business decisions around education. The median tax payer will only care about education quality and availability for around 15 of their ~40 years as a tax payer.

For those remaining 25 years, they will tend to prioritize money in their pockets over a teacher's salary; a situation that does not align with the betterment of our society at large.

A million dollar teacher won't be able to do their job effectively if the child lives in a broken environment, so it's something that has to be attacked from all angles simultaneously, from the teachers, to providing the child's parents (and neighbors) with economic opportunities (and/or educating them), and even then it would be a slow process taking effect over generations, so no politician could claim it. Seems almost impossible to accomplish in a democracy.

There are plenty of million dollar teachers, but they work in private tutoring or corporate education positions.

The million dollar teachers will do things like actively manage the student's home life or business trajectory, give them personalized curricula, connect them with opportunities to gain hands-on experience, etc.

Not saying you're wrong re: the incentives or anything, but a lot of people don't even know this segment of the market exists.

There's an excess of programmers too. Oh, good programmers are scarce? Good teachers are scarce too

>Good teachers are scarce too

You have named the very reason the teachers are angrily protesting any and all attempts at evaluation of teachers' productivity. Or introduction of private (i.e., market-based) schools competing with the state run ones.

> If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

With most salaried, white collar jobs your payscale is almost completely decoupled from your productivity. You are paid based on the market value of your skills and experience. You're essentially a commodity.

We see this in the software industry all the time: There's little salary difference between a "good" and "mediocre" programmer. The so-called "10x" engineer, myth or not, is likely to make just 10% more than their peers, if even that, not 1000% more.

I'd expect that eventually the so-called "10x engineer" (if they have any kind of business acumen) eventually finds their way into a role where they are paid proportionally to their productivity, whether that's by becoming a business owner or by an explicit profit-share arrangement.

In the meantime, of course, it's as you say - and in fact they may be paid less, because they're spending their energy on engineering instead of political maneouvering.

“eventually finds their way into a role where they are paid proportionally to their productivity”

I don’t think that’s true. There are plenty of people who do great work but aren’t good at necessary self promotion. Or they just want to stay where they are. So they are very productive but are paid pretty much like everybody else.

I have had the pleasure of working with several truly outstanding engineers over the last few decades. My experience is that they're generally happy if they get to keep doing what they love and excel at (coding) and don't mind that they're "only" paid 1.5-2x the industry norm for Joe/Jane Average programmer. Joe/Jane are getting paid enough to be very comfortable and 1.5-2x that is extremely comfortable.

>There's little salary difference between a "good" and "mediocre" programmer.

An essential condition for things to be commodities is that they're fungible. If we accept that your "good" and "mediocre" programmers are commodities, there's no basis to call them "good" and "mediocre" because they're fungible to their employer. And if there's a basis to do that, how are they fungible ?

> If we accept that your "good" and "mediocre" programmers are commodities, there's no basis to call them "good" and "mediocre" because they're fungible to their employer.

Being fungible doesn't imply that there is no quality difference between goods. It just means the quality difference is irrelevant to the purchaser. Stationeries are viewed as commodities by most businesses but I can still distinguish a good pen from a bad one.

> The so-called "10x" engineer, myth or not, is likely to make just 10% more than their peers, if even that, not 1000% more.

That doesn't seem right. An entry level programmer will make around $100k. There are definitely engineers out there that are paid more than a million a year

I don't know what bubble you are living in where 100k is an entry salary (besides the crazy high cost of living sf / NY metro areas) but in 90% of the US outside tech hotspots entry level programming jobs are as low as half as much, especially in the Midwest.

FWIW, the Boston area is also ~$100K for new college grads at a "tech matters to us" company (which makes somewhat less sense to post now that the parent comment has been edited...)

I know several programmers that are many times more productive than their peers, when compared to least-performing peers it's easily 10-20x. They make a little bit more, I'd guess 20-30%.

Not in the US, but I'm sure this is quite common and compensation anywhere near reflecting the performance is a rare exception.

>I know several programmers that are many times more productive than their peers, when compared to least-performing peers it's easily 10-20x. They make a little bit more, I'd guess 20-30%.

I'm not saying the system is perfect at identifying who's the 10x engineer and who's the bum. But once identified there is definitely a gap in pay roughly equivalent to the difference in production.

Which system is identifying the 10x engineer? What generates that gap in pay? It sorts of sounds like you are trying to fit reality into a model and not vice versa.

>Which system is identifying the 10x engineer?

The compensation scheme at companies that employ them.

>What generates that gap in pay?

All companies are different but it's typical a difference in grade or rank.

Sorry for a late reply. In most companies outside the US nobody, not even the CEO, makes 10x the income of an average low-performing engineer. A high performer has a chance of getting a respectable salary only by rising to CTO or similar roles, which obviously require skills other than just project contribution.

There is literally zero chance a high performer would get even 3x salary compared to their peers. Those pay ranks simply do not exist.

Totally agree. There are a few exceptions but for most people their pay is not much correlated with productivity.

To me, a 10x programmer is thought of in relation to their peers

If you have a good development stack that is properly tuned to your niche, a good portion of the work should be domain analysis, not raw coding. If your bottleneck is coding, your stack is probably wasteful, bloated, and/or buggy, creating unnecessary busy-work. Orgs often over-follow fads or grab trends from industries that don't match their own, rather than tune or clean their existing stack. Rewarding those fast at unnecessary busy-work usually just multiplies unnecessary busy-work.

Nowadays within couple of hours while sitting in front of the computer I can plan and book my holidays, submit a bank transfer, submit tax declaration, buy new clothes, and extend the insurance. Unthinkable until the late 90s. This technological leverage is created pretty much by a "median worker". Where the margins from this turbo-raise of productivity go? Because they certainly don't vanish neither reach the worker.

You can do all of this in one evening instead of over the course of a month. That is how it reached the average person. The average worker did not contribute to making this happen, but they benefit a lot.

The margins go in the consumer's pocket and that of the owner of the services you are consuming + you are consuming higher quality services/products. Also, as the consumer, you pay with your own free time: every time you self check-out, do your own accounting, tax fillings and so on, you are doing (a bit less) work that was done by an employee in the past. So the margins mostly go to the owners of the services you are consuming (i.e. tax haven accounts).

Self checkout doesn't cost free time. Lines are shorter than in past and you still have to wait if a clerk scans your products.

Self checkout at as implemented in local shops has odd value proposition for the shopper. Basically it is more hassle and marginally faster for the benefit of allowing the shop owner to fire some people. Compare this to handling bank transfer at your own home computer or mobile phone versus going to the bank during business hours.

The people who created that technological leverage are far from median workers, and earn many times the median wage.

So I, the tool maker, deserve ALL of the extra profits you generate via the use of my tools, from now until the end of time?

I'd hardly call the time since the invention of computers and the Internet "from now until the end of time".

And what the toolmaker "deserves" is decided in negotiations between the toolmaker and the people who pay for the tools. It seems they've decided that these tools are worth quite a lot.

It seems you're telling me that stagnating wages for increased productivity is fine, because the extra productivity is from better tools, not more work, which means the workers don't deserve the extra revenue from their increased output, is that right?

So if you're a farmer, and you're given a new kind of tractor that doubles the yield of your fields, you'd be totally fine if your landlord just took the extra crop for himself, leaving you with exactly the same amount as you would have had without the new machine?

The average worker today produces far more in an hour than the average worker from the '70s did in the same time. And while I get that the increase is not uniform across all workers I am sure it is an increase.

What is the reason for keeping wage tied to time rather than productivity or work, other than a quest for ever increasing profits? And if the wage can't be increased why not decrease the time? This way the worker gets a reduction in time for the same wage and the employer still gets a hefty productivity increase over a few decades ago for the same wage.

I see some countries have actually kept wage and productivity tied to each other and it doesn't look like it was detrimental to the economy.

I'd appreciate dissenting opinions in a more productive format like counterarguments rather than a wave of downvotes.

> The people who created that technological leverage are far from median workers, and earn many times the median wage.

If the issue was, as you are implying, one of distribution, we should be seeing income inequality growing while the wage share of the national income stagnates.

That's not at all what is happening. The wage share has been steadily declining since the 80s. The truth is that shareholders not workers got the lion share of the productivity increase.

More and more aggressively creation and maintenance of these systems are being outsourced and nearshored to the cheapest available location, ideally employing on-demand workforce.

Even when the work is sent to other locations where the median wage is lower, the workers are still far above the median in those locations.

Re: If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

Other people? The rich? Or even machines? There are several questions raised here.

Even if we go with the presumption that the rich are simply more productive/useful and "deserve their income", that still doesn't answer the question of why inequality is increasing.

Did the rich simply start to get significantly better than the rest around 1980? Instant evolution? Or perhap the economy is becoming "winner take all". The more you control the more you CAN control. For example, the big tech co's have huge patent portfolios in which to sue any upstarts from entering their turf. Their big competitors have their own giant portfolios to defend against each other's patent claims via counter-suits. Thus, smallbies are essentially locked out, forced into niches.

Even if we assume they deserve their big incomes, it could still pose a risk to democracy as the rich buy influence. The Supreme Court more or less has concluded money is free speech, meaning the rich (and corporations) can speak louder than the rest. Their point of view gets splattered everywhere and counter arguments from regular folks get drowned out. And there is campaign donations, which is legalized bribery, which the Court also upheld. The rich can use their influence to get even more politicians and judges in play which favor the rich, creating a runaway train of influence. "Slippery Slope" is often considered a debate fallacy, but we are sliding into inequality in practice. Sliding does sometimes actually happen. Unions are being gradually stripped of power by politicians and the courts, for example.

Therefore, even if one accepts that the rich deserve most their money, their spending power may have the practical side-effect of undermining democracy and equal representation.

And, how many mansions, Maseratis and swimming pools does one "need" to be sufficiently rewarded? 7?, 20?, 82? I thought it really telling that John McCain lost track of how many mansions he owned.

If we assume it's machines that have generated the increased total wealth, then obviously machines don't want nor need money (although I'm working on a Greed-A-Tron). So who gets it? The owners of the machines typically do, but are we just rewarding them for simply owning more machines than you and I? Owner take all?

> Did the rich simply start to get significantly better than the rest around 1980? Instant evolution? Or perhap the economy is becoming "winner take all". The more you control the more you CAN control. For example, the big tech co's have huge patent portfolios in which to sue any upstarts from entering their turf. Their big competitors have their own giant portfolios to defend against each other's patent claims via counter-suits. Thus, smallbies are essentially locked out, forced into niches.

The argument is not quite "winner take all" but as the article said "winner take most". We have increasingly become a knowledge economy. Technology has created a multiplier effect, where the productivity of the top decile or so of performers is magnified significantly by software and other things, making them have even more of an edge over the bottom 90%.

This isn't a competition between 10% of the workers and 90% of the workers. There isn't a fixed amount of money allocated to 'labour'.

It's a competition between the capital/investment cycle of the economy and the labour/consumption cycle. In this case it boils down to leverage in employment negotiations. Those 10% crackerjack hyperworkers you're theorizing exist would be even BETTER off if they were recouping a larger amount of the margin they were producing.

I'm not sure I understand your point. My point is simply that those 10% are better able to capture the value they create, whereas the bottom 90% are not. I'm not making any assumptions about a fixed-size pie.

The point is, those 10% aren't better able to capture the value they create. They're just in a more favourable position from the perspective of the labour market. It doesn't mean that the fact that they are 'knowledge workers' is giving them magical new tools to outperform everyone else. It just means they're in demand because the market is vomiting money at tech companies, so tech companies are sucking up every developer resource they can find in their sprint for growth.

You can make developer bucks working as a blue collar worker on an oil rig, or as a normal dude on a fishing rig. These people aren't making cash because they're 'knowledge workers'. They're just supplying labour to a field with solid demand.

But average IT worker wages have also more or less stagnated. By some accounts we have done somewhat better than the rest, but most the expansion is on the wealthy end. Therefore, it's not just the ability to automate.

When work is automated the productivity comes from owning the automation, not doing it. Meaning that the top 0.1% who owns all the automation are taking most of the gains. This is only possible thanks to the top 10% selling all their automation work to the top 0.1% for cheap.

Okay, but most owners own out of luck or family, not because they are special. Or, they did one thing special at the right time, which then allowed them to start accumulating ownership in a snowballing fashion. Most of Microsoft's well-known products were purchased from/as start-ups or small co's.

Nowhere on that page did I see a chart showing the dramatic increase in CEO pay since 1950. The money is still there, it just going to the top.

Are you saying the CEOs are solely responsible for this productivity gain?

There’s a whole section about redistributing executive pay.

Maybe you should look harder.

> If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

I saw this as an argument against profit. If you changed 'the median worker' to 'the capitalist', it might show up in 'The Communist Manifesto'.

> If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

I usually turn this question around: as a programmer, I'm responsible for a greater share of productivity than some people in different functions who are paid less. However, I do not work harder, do not sacrifice more, do not hate my job more - more likely the opposite, even. Why am I entitled to a larger share of profits than other people?

(I understand that the system generally "works better" this way. However, since we're talking about being entitled to something, I wonder if there's a moral argument that can be made.)

imagine a laborer who works double the hours you work, exhausting his mind and body more in a single hour than you do all day. but all this mind and back breaking work is to create ugly mud sculptures, unwanted by all but the most eccentric connoisseurs. do you think he is entitled to even greater compensation than you, because he works harder? would you find it fair if he were compensated exactly the same as you?

No, I don't think he's entitled to greater compensation than me - because I don't have a good rule for determining how much either of us should be entitled to earn. In a moral sense, that is - I understand that me receiving better compensation helps to prevent ugly mud sculptures from being created. That doesn't make me feel entitled to my compensation, though.

You're entitled to your compensation because someone of your skill level is needed to get the job you do done. Yes, others may suffer more but the result is what creates value, and the results of their work are less than that of yours. And if your work required more suffering, it would probably pay more too.

Basically, your compensation is based on the face-value of the results of your work, as well as the difficulty necessary in order to be capable of doing such work. So for other positions that require more work-per-hour, they get less usually because a greater population is capable of that same work. (and so, someone somewhere can be found to do it cheaper)

I think that seems to be missed a lot in discussions of this nature, the value of training and the scale of populations with given skills and how more training generally means less people and therefore less who are desperate and will take a lower than standard wage. (while with unskilled positions, it's automatically a race to the minimum)

Well, that's a direct connection between someone producing value and receiving it, and why we're running the system this way, but that doesn't quite cut it for me as a moral code. For example, if one is entitled to the value they produce (to the extent that that can be properly measured), why would we take care of the disabled, or the elderly?

Because empathy (one day we will be elderly too), and because they did contribute value throughout their lives. In return for that, they earn respect and care. On some level, it is a selfish empathy (if I help this old person, it helps normalize that helping old people is a thing we should do, and then I can cash out on that when old), but maybe all empathy is anyways...its ok if its selfish internally if the result is consistently positive.

> I don't have a good rule for determining how much either of us should be entitled to earn.

I don't have an objectively provable rule, but I do have one that makes a pretty good starting point: if you create something valuable, you should be able to capture most (or even all) of that value.

of course, no one just creates things from scratch. they use tools designed by other people, they use resources extracted from the earth, their productivity might be multiplied if directed by a good team leader, etc. if you take the final product and subtract all the tools, resources, and infrastructure used, you have your personal contribution. I think we should strive for a system where the worker keeps as much of their contribution as possible. some people's contribution will be much larger than others', depending on their skills and the type of work they do, but I don't think this is inherently unfair if you have first accounted for all the external things they have benefited from.

But what about people unable to work? What about the elderly, the disabled, or, as more and more gets automated, those no longer able to provide more value than robots? If our moral code is limited to "you are entitled to the value you create", then those people would be left out - and I think that's inconsistent with the rest of my moral code.

It doesn’t matter how “hard” you work, but the value of the work - and value is 100% determined by how much people will pay for your output, and that price is determined by the scarcity of your product.

A guy that digs gold out of the ground is going be able to sell that gold at a higher price than a guy digging worms; while working at exactly the same “hardness.” There are those that would suggest that both should be paid the same, which is ridiculous as that suggests a pound of worms is as valuable as a pound of gold.

Sure, that's how the system works, and why it works well in order to make sure gold gets dug out of the ground rather than worms. That makes it a justification for doing things this way, but it's not a justification for me, personally, feeling entitled to the money I receive.

> Why am I entitled to a larger share of profits than other people?

You aren't entitled to profits at all. Profits come after cost. You're cost. You cost more because the demand for your labor versus the supply of your labor raises the price of your labor.

Don't assume this will go on forever, the next bust may well wipe out the huge wage advantage of today's tech workers.

Sure, I'm not assuming this will go on forever. The main point of asking my question was to get a grip on a moral framework for justifying... I don't know, private property?

1) No one treats everyone else's property as well as their own (tragedy of the commons).

2) The fact that you are paid more ensures that society's demand of your kind of labor is met, resulting in a more efficient allocation of resources. If everyone instead was paid the same, there would be less incentive to get better training or to perform undesirable work, resulting in less efficient allocation of resources.

Yes, that's the reason we're doing things this way, but that's not a moral reasoning. If it were, that would mean being opposed to e.g. being taxed to take care of the disabled. I'm wondering whether there's a way to reconcile those two in the same moral framework.

> Yes, that's the reason we're doing things this way, but that's not a moral reasoning.

It is moral to allocate resources more efficiently, as it increases well-being and reduces waste.

> If it were, that would mean being opposed to e.g. being taxed to take care of the disabled.

Not at all. A society which allocates resources more efficiently has more resources available to deal with such problems. It is also in the self-interest of every individual to be taken care of, should they become disabled.

The (im)morality of using taxation to this end (as opposed to voluntary charity and private insurance) is a separate debate altogether.

> I'm wondering whether there's a way to reconcile those two in the same moral framework.

They're already reconciled.

>If the median worker isn't responsible for the increased productivity, are they entitled to a share of the work of other people?

If the median worker isn't responsible for the increased productivity, it follows trivially that you can do something to increase the median worker's productivity, earning higher profits, until all firms in your sector do it and you all end up having to compete for the increasingly productive workers by raising wages.


The most likely inference, a priori, for where this process has broken down is: employers aren't having to compete for workers very hard any more, so competition doesn't push labor prices up.

Indeed, _total_ productivity should be compared to _average_ wages. The difficulty is that, at the higher end of income, the distinction between wage, business income (eg consultants), and investment income (eg stock based compensation) is not clear.

>>"[..] are they entitled to a share of the work of other people?"

The work of other people? Is productivity increments the result of some people working harder instead of and increment in technology and knowledge?

There appears to be a section missing: the one that discusses the consequences of the globalization of the labor market, especially with regard to non-physical labor. Arguably, this is a consequence of policy changes, but it is not discussed in that section, either.

That’s probably because it’s antithetical to current economic and political thought (free global trade is an unalloyed good). Of course this has an impact. It’s the converse of the rising foreign economy where the local worker has seen their incomes rise due to export driven economics. They’re exporting their labor, we’re importing to complement our labor and that has placed negative pressure on wages.

It’s clearly seen in farm workers. Large agri businesses say that unless they have cheap imported labor, they can’t afford workers. But that does not stand. In their current economic model cheap labor is necessary, but it’s not inherently necessary.

The late 1990s to early 2000s anti-WTO leftists understood this, Perot understood this, but they were vanquished by non labor interests.

In the conclusion the author guesstimated globalization was ~5% of the effect. It'd be nice to see the reasoning for the guesstimate.

I'm not sure about 'non-physical labor' but an IMF report [1] found that in many industrialized countries, such as the US, Germany, Japan, etc., depressed wages correlate strongly with low labor union participation rates. Surprisingly, other factors such as globalization and automation where found to be of little significance.

[1] https://www.imf.org/external/pubs/ft/fandd/2015/03/pdf/jaumo...

Particularly telling is that he compares the gap between the US, Germany, Italy, Spain, and France.

I really want to see the same charts for coastal vs inland China and Mexico. Did a rising tide lift all boats there or not?

The problem is mostly one of data availability. China has plenty of data, but not all of it is credulous. That, and the fact that comparisons of any two nations will always be susceptible to the accusation that the data has been "cherry-picked" to show a favorable result.

But the global data on poverty is basically unassailable. Poverty has declined absolutely everywhere. The rising tide lifted at least the very poorest boats, whatever can be said for the American middle class notwithstanding.

The problem with this entire discussion is that we use terms like "wages" and "productivity", which have meanings in the English language, and associate them with metrics which are utterly divorced from those meanings. To have a sane discussion, we're forced to use these shorthands, but the fact of the matter is that if we spelled out what we were actually measuring it would be very clear that all of these phenomena being measured refer to things disconnected from any of our actual experience.

Even more so, the methodology for most of this data has changed so much over time, with so little overlap between methodologies, that we have literally no idea what the state of the world was even a few years ago. All we have are a mixture of giant measurement artifacts, and when two of them correlate we celebrate because we might have found a metric that can bridge the divide between methodologies, but that correspondence disappears as soon as we try to find out if there are systemic changes -- our ability to determine whether something has changed has an implicit reliance on the assumption that nothing has changed, so all of these arguments become circular.

Econometrics is a philosophical dead end that just ends up producing broken policies disconnected from reality and causing us to make up a new suite of politically-motivated metrics to match the outcomes that we're looking for, and then give the metrics names that refer to things that have intuitive meanings and pretend we've found insight.

You really have to go back to non-econometric-based economics (the Austrians, von Mises and Hayek) to get any sort of insight into how economies can be made to work at scale, and the answer is that we don't understand them, and that technological progress and population changes mean that attempts to push them in a direction will have side effects that far outweigh any of the attempted influence.

This isn’t true, the study of applied economics (new Keynsian) saved the US in 2008 when the Fed decided to shore up liquidity and helped bail out industry in concert with the government. Austrian policy would’ve let the entire system collapse and rebuild itself to avoid the construction of perverse risk incentives and the zombification we are seeing in the economy today. You can argue which would be better long term (I think Austrian) but short term we needed Keynesian measures to save jobs and lives from being consumed in a downward spiral of debt chain triggering and collection.

Productivity has a precise economic definition - ratio of output to inputs - and correlates highly to standard of living. We don’t fully understand how and why technology advances, but we measure increased technology through a variable called the solow residual. Economic policy can help lead to technology breakthroughs that increase productivity and the standard of living. It’s very shortsighted to dismiss economics out of hand as something we don’t understand. A lot of it is politically motivated but let’s face it politics is what happens when groups of people get together and try to collaborate. There’s a lot of important work to be done around productivity economics and I’m glad it’s getting more mainstream coverage

> Productivity has a precise economic definition - ratio of output to inputs - and correlates highly to standard of living. We don’t fully understand how and why technology advances, but we measure increased technology through a variable called the solow residual.

What happens when you can't measure the outputs? What's the total value added by the financial sector? Or the legal sector for that matter? If I invent an inexpensive cure for a disease that renders expensive medicines obsolete, has productivity gone up or down?

Regarding the Solow residual, you certainly can put income on one side of a regression, and estimates of labour and capital on the other side, and set them equal using a residual term. I don't think you can convincingly argue to anyone besides an undergrad economist that the residual represents technology though. Don't think too hard about what the units of that residual are...

It’s an approximation that needs to be imputed, and can’t be measured directly. It doesn’t need units to be a useful measure against itself at different periods, to measure the rate of change of how environmental variables effect a nation or firms production function. I think it’s cool and useful that someone tried to quantify how much infrastructure affects productivity by abstracting away all the immeasurable variables into one term. It’s an extremely important concept that deserves more work because of how closely it is tied to advances in standard of living. It’s not perfect but it’s very interesting and could be ripe for a revamp given how much data we are now collecting from all sources

My point about units is that (depending on the exact model) if you change the units, your conclusion may change, which is absurd.

> saved the US in 2008

I could not disagree more strongly on this. First, objectively, we have no basis for saying whether or not the actions taken actually helped anything, because we have no control of any sort. All we have are theoretical models, which, I cannot stress enough, were absolutely useless in predicting the crisis in the first place, which, while not disproving their effectiveness, should at least give us pause. How many times can a model be wrong and "on-the-other-handed" before we admit that it is garbage?

Long-term it sounds like we're not in disagreement, but the short-term aspect I also find unconvincing. We still lost the jobs. People still fell down into debt spirals, specifically because the capital infusion allowed the banks to not reprice their mortgages, which is the only sensible way that they could have had any sort of business continuity; to take the write-down on the property values and allowing people to keep paying down the repriced debt rather than pushing things further down the cliff by forcing people to enter foreclosure and thus further depress the housing market.

Subjectively, we saved a couple of giant banks (and an insurance company) that collectively had taken on so much risk exposure that it dwarfed the total income that those institutions had made over their lifetime. Those were the institutions that most needed to go into receivership, to be broken into pieces and sold to smaller banks that had been more prudent with their investments. That process already existed in law and needed no special handling; Sheila Bair and the FDIC were ready and willing to do the right thing. Instead we end up with TARP and the ridiculous avoidance of actually relieving troubled assets, instead just giving a ton of money to the worst possible actors, and then fudging the balance sheet to look like we made a profit on the deal. The whole thing stinks and is morally repugnant and sets up all sorts of perverse incentives.

Okay, that's enough of the initial rant, and I apologize if it seems like I'm lashing out at your reply, which actually was well-balanced.

Productivity does have a precise economic definition, but it is not the colloquial one, and regardless, it is absolutely impossible to measure in any meaningful sense; all we can do is use statistical tricks with existing data to attempt to estimate it, but those estimators do not remain stable over time because the underlying metrics rarely have the longevity to serve back a few more years.

It's a rabbit hole I heartily recommend -- find an estimate of "productivity" and dig down to what it is actually measuring, and then see if those metrics can be compared to metrics from the past. If someone wants to take that on and reply to this, I'm happy to see the analysis; I haven't done it yet for this particular metric, but I've become familiar with the picture; colloquial term to "precise" economic definition, the methodology for estimating it as a point estimate based on other metrics whose provenance is dubious and which themselves have methodological issues that defy our ability to measure them over time (i.e. often devolving to self-reported data or tax data or labor that is subject to changes year over year; the changes in reporting requirements alone make the data useless). If we dug down and talked about the actual metric that we're talking about when we say "productivity" then it would be rapidly apparent that we're talking in circles.

Once you realise that workers are compensated according to their bargaining power rather than their productivity, none of this should be surprising.

I was going to say something similar. I'm 41, and when I was a child in the early 80s, work was simultaneously higher paying, a bit more intense than today's standards, but also had shorter hours and more leisure time. Where I live in Idaho, my family and friends were: a dentist (dad) dental office manager (mom), carpenter (godfather), minister, interior decorator, teacher, artist, mechanic, lots of military workers on the airbase by my hometown, etc. Maybe half or less of the mothers I knew worked outside the home. Fathers hunted in the fall to feed their families.

But our community was largely self-sufficient. We didn't have Walmart yet and its associated trade deficits which contributed to the national debt. I'll admit that we were dependent on the nearby military base, BUT that was during the Cold War. Had the base closed (as it probably should have after the Berlin Wall fell, say 1990), I think my home town would have survived on ranching, timber and mining (none of which I support by the way, as Idaho's environment is under constant attack).

Yes I see the contradictions in what I am saying. But I also believe that we could have had a more sustainable future had we faced facts and started the process of transitioning to a 21st century economy earlier. That might have even led to Gore being elected instead of Bush. So it's complicated, and not always easy to discern cause from effect. It's all been 20 years delayed, but there is work in green energy here today.

My feeling is that the American worker HAD MORE LEVERAGE then - in terms of being able to walk onto any construction job, or specialize in a 2 year education trade, or even get free college in many states. We still had unions. We didn't have the welfare cuts that happened under Clinton or the 100,000 factories shut down under GW Bush yet. Quality of life and the feeling of making one's own way was higher then.

If we want to fix our economy, we need to get organized and take a bigger piece of the pie for workers (perhaps we should call them makers or producers), rather than giving it to people who already have money. We can moan and complain about this simple fact from all political angles, but until we start electing people who understand how this works, our long slow decline will continue.

One more mystery: if all of this is true, why isn’t small business formation higher? After all none of these factors (besides mismeasurement) applies to you if you have a small business.

But if anything, business formation is down.

(Also, the charts by educational attainment are meaningless. There has been a huge shift within categories. Being a high school dropout in 1960 meant something completely different than today)

Is it because more and more areas of business activity are conquered by large entities and thus are hard to enter into? As a small guy, you won't achieve economies of scale of Wallmart or marketing of McDonalds, while 70 years ago, if you were opening a convenience store or a restaurant, you only had to worry about local (non-chain) competition.

> Is it because more and more areas of business activity are conquered by large entities and thus are hard to enter into?

Is that true though? Artisanal, craft, handmade, premium, bespoke, etc. of every kind of bullshit is booming. Etsy, indiegogo, kickstarter, eBay and whatever else is big business for small producers of gadgets, trinkets and everything cute, right?

That said, yes, Amazon and other forms online shopping, is pushing out small shops, but cafés are opening everywhere in cities. (Urban revival and whatnot.)

But ... without hard numbers there are just feely-goody impressions, so I have no hard belief about this, just trying to offer a coutnerpoint.

>Is that true though? Artisanal, craft, handmade, premium, bespoke, etc. of every kind of bullshit is booming.

Only in markets where there's a high enough density of rich people with nothing better to spend their money on. Businesses selling hand crafted bagels don't exist outside areas where there's a lot of people willing to spend their discretionary income on craft bagels.

Well, the internet helps with this. But granted, you're not going to sell artisanal sandwiches over the internet.

And folks willing to spend $40 on specially roasted and ground coffee are far, far fewer than folks spending $2 for the grocery store brand.

> Is that true though? Artisanal, craft, handmade, premium, bespoke, etc. of every kind of bullshit is booming. Etsy, indiegogo, kickstarter, eBay and whatever else is big business for small producers of gadgets, trinkets and everything cute, right?

People don't rely on these for their main sources of income in most cases, they're almost always hobbyist endeavors or being subsidized by some other income source.

Consumers value the benefits of efficiencies of scale, such as online ordering, being able to return anywhere in the country, rewards programs, being able to find consistency in quality wherever you are, etc.

It's also impossible to compete on price with bigger competitors. How can a small business compete with Costco? Technology has allowed the bigger players to wring out all the efficiencies bringing margins down to as low as possible, so it's only viable to start businesses that have higher margins, such as professional services.

Also anything that you can sell as high value, to support your high margin. Hence the craft beer, artisanal soap, etc. (see also Etsy and co.) But usually that doesn't require people to start a small business, nor do most of these etsy shops are really able to support/become one.

Not sure about US - but for the UK: Number of UK start-ups rises to new record | Financial Times (2017) https://www.ft.com/content/cb56d86c-88d6-11e7-afd2-74b8ecd34...

Also: https://www2.gov.scot/About/Performance/scotPerforms/indicat...

Netherland has seem an immense growth in self-employed people.

If it's not the case in the US, could that somehow be related to this decoupling?

The Netherlands has entirely the same wage decoupling, albeit not totally at the same scale. A simple test for this: look at what kind of salary you need these days to support buying of a single-family home. I can tell you: my parents did this on the support of 1.5 medium-low income wages.

Could that be because more and more people are trying to live in cities, yet housing is not growing as fast as it did in the last "let's move to the city" boom?

Yeah, cities are expensive. Outside the city you can still buy a house on a single income. Not a big one, though. Still, compared to the house my parents bought when I was 6, houses have clearly become a lot more expensive.

Seems to me that a major reason there are fewer small businesses being created is because real wages are stagnant. You need extra money to start a business.

Add to that the costs of healthcare, which in the US tends to be tied to employment, and bingo. There's your answer. People have no money, nor no safety net if something goes wrong, so they stick to their garbage 9-5 instead of trying something new.

Is Medicaid not a safety net? What are those billions spent on? What about food stamps? The US has plenty of safety net.

I'm sorry, I didn't explain it quite enough.

To go from a comfortable - meaning I'm not living paycheck to paycheck concerned about whether I have to pay for either food, gas, OR medicine - to uncomfortable - meaning relying on the largess of the ruling class through 'social' programs - is a step most people are not willing or able to take.

I understand that those programs are a safety net, but they are further down the cliff than most people are comfortable with. If you've hit them, you've hit two feet from bottom with a very small chance of recovery.

Does that make sense? I think it's a difference in how you define 'safety net'.

If there are people who are unable to live in a home, there is not enough safety net. Housing should be a right of citizens, as well as medical care. Private property has allowed wage inequality to increase with no end.

Because business formation is pretty risky and, to me, seems to be getting riskier as you have to compete with global players in almost every market.

> Because business formation is pretty risky and, to me, seems to be getting riskier as you have to compete with global players in almost every market.

so by not risking, isn't it then "correct" to say that an employee shouldn't reap the rewards that the owners currently get as they bear the risk?

Entering a market as a new player is risky, but being a quasi-monopolistic incumbent is not really that risky.

I see this as the real crux. New business starts necessarily take labor out of the market while also increasing its demand (maybe not instantaneously).

I will be controversial and argue that the male sex compounds their income at a greater rate than the female sex principally because their genetical nature causes investment activity contra females which generally consume. Therefore With more women in the labor markets, there has been a drag on wages.

A factor could be how difficult and expensive it is for people to get health insurance on their own.

Because of energy. Productivity going up means one person uses more machines, and as time goes, the machines do an ever increasing part of the job, because the energy feeding the machines is so much cheaper than human labour (in the order of 200 to 400 times cheaper).

This is not by chance that wage stagnation appeared in correlation with these events: US oil production peaked in 1970. Dollar convertibility to gold ended in 1971. Oil crisis came in 1974. OECD countries enter a permanent trend of public deficit in 1974. Unemployment soared in OECD countries at the same time.

As the ability to augment energy consumption became more and more capped by the ability to extract energy from the ground, workers gradually lost their capacity to obtain their part of the cake because it's always cheaper to put more capital than people at work, so far. The trend intensifies, nowadays we're talking of ending employment and of the necessity of basic income and similar tools.

Until the (unavoidable) end of cheap energy, that is... Then we'll be back to the ancient order of things, when a country GDP was entirely correlated to the size of its population.

I'm having trouble understanding why, in a society with ever-advancing technology, why wages would trend with productivity. I'm seeing it like this (and please correct me if I'm off base):

Input = (Labor portion) + (tech & automation portion) + (other portion including things like land, materials, and overhead)

Productivity = output / input

Wages reflect the labor portion's contribution to "input." We know that tech and automation's portion is continuing to increase in relation to labor. Therefore, with this understanding, wages must decrease in proportion with productivity.

> Wages reflect the labor portion's contribution to "input." We know that tech and automation's portion is continuing to increase in relation to labor. Therefore, with this understanding, wages must decrease in proportion with productivity.

Let's say I make widgets for $10 an hour, and make 100 widgets per hour. That's $0.10 per widget.

Then, a new tool comes along, and allows me to make 200 widgets per hour. The cost of a widget is now $0.05 per widget.

Who "deserves" this extra profit? Yes, my employer paid the expense for the new tool, but this is (more or less) a one-off expense. They will recoup this cost, and eventually the increased productivity will be pure profit,.

I, on the other hand, am still spending eight hours a day making widgets. My time is now worth twice as much as it was, but I'm still being paid the old rate.

The issue we're seeing with wage stagnation is that companies are making one-time investments and recouping increased profits forever, while employees are working just as hard, but seeing no increased benefit.

And that's just from a simple math perspective. This discussion entirely ignores the fact that when you employ someone, you are essentially renting a human being, and in order for our society to function, that cost must have a floor. Society as a whole suffers when you are able to rent a person for less than it costs to live.

> My time is now worth twice as much as it was,

no. your time is now worth half as much as it once was. the tool is what brings the increase in value, not you nor your time.

the owner can now replace you with someone who costs half as much and is half as efficent and get the same result as before the new tool was brought in. even with this decrease in time efficiency, the cheaper less efficient worker has the same value as you did before.

so lets say the owner still wants to increase efficiency but cut costs. ok, they fire you and hire someone else for 75% of your wage and 75% of your efficiency. the owner can still make the same amount of widgets as before in less time and for less cost.

your value has decreased, not increased.

I think a lot of people undermine the competitive nature and other risks that companies have to take in its pursuit of higher profitability only looking at a few with bad practices.

For example, a company may have to spend 1 year's worth of R&D to reach a new tool that would add 10% productivity to its current workforce. What % should go to increasing employees' wage? What are the risks of competitors finding similar productivity gains and not increasing employee's wage, leading to a competitive disadvantage to your company?

When a company hits a breakthrough that adds a multiplier to a part or all of its work, society, including its employees expects it to share more of their gains. What is the right balance? Who deserves the gains and at what %?

I do believe you have some fair points on the employee's side of things and that your last paragraph really hits the nail with a key problem society faces.

Let's say that you pay that hypothetical employee twice as much, so that his wage increases with the output. In effect, you've negated the technology's effect on productivity. In this case, wages would trend with productivity, but only because productivity would not increase.

The pot should get split three ways.

The toolmaker gets a cut. This usually happens in the process of buying the tool.

The buyer of the tool gets a cut. This happens, perhaps excessively.

And the worker should get a cut. The worker who knows how to use the new tool is worth more than the worker who only knows how to use the old tool.

It seems, however, that the workers getting a cut is where the process often breaks down.

That might be true, but it seems tech is not that meaningful. Usually technological change carries with it a lot of need for human labor. (Eg. first it needs to be evaluated, planned, implemented, supervised, maintained, repaired, etc.)

And it seems that tech displaces the middle income jobs. ( https://economics.mit.edu/files/11563 ) Which of course puts a downward pressure on wages, which probably contributes to the decline of labor share of income, but this effect is no as big as using a different deflator, nor is the technological change well correlated with the aforementioned decoupling.

It's weird how capital is assumed to take credit for automation. Automation is built by labor.

Yes, but not yours.

That is: when the Acme Widget Factory buys Jake's Improved Widget-Making Tool(TM), it's Jake's employees' labor that made that tool, not Acme's. It is therefore Jake's employees who deserve to be rewarded for creating the automation, not Acme's.

That's why I said "not yours" - not specifically you, crdoconnor, but the labor of the company that buys automation did not build that automation. They still should be rewarded for the the increased productivity that comes from knowing how to use it, but they didn't build it.

And when I said "they still should be rewarded", that doesn't mean that they get all the benefits from the increased productivity. The tool maker has to be rewarded, too, or there won't be many tools to improve productivity. And the capitalists who bought the tool have to be rewarded, too, or there won't be many such tools bought.

Yep but in the current economy it's not a shift of wealth from Acme workers to Jake workers that's going on. It's from workers of Acme and Jake to owners of Acme and Jake.

Because we would usually expect employers to compete for workers up to the wage-level of marginal productivity. If you're underpaying your workers and we both have the same technology, I can lure them away by paying them more, until they start demanding wages higher than our tech can allow. To compete with me, you then have to raise wages too, and the market evens out at marginal wages equaling marginal productivity.

One of the Big Questions not covered by the article is: how competitive have labor markets been over time?

You're not wrong, but I think this is just ambiguity of terms.

'Productivity' in wage stagnation discussions is implicitly 'labor productivity', which is technically a "partial productivity" measure judging the amount of output generated by a unit of labor. It's not the same as overall output of value. It also isn't the same as "labor portion" in the equation you sketched, though, because capital expenditures like space or technology that increase worker efficiency still constitute labor productivity gains.

(The 'labor portion' there seems closer to what Marxists look at in the labor theory of value - the amount of time and effort expended by labor, isolated from other factors. You're right that that doesn't end up tracking productivity or wages.)

The idea that wages trend with labor productivity, then, is that anything increasing labor productivity increases the output value of an hour's work, which ought to increase the amount of money a worker can demand for their time. They won't capture the full rise in value output, because some of it will be consumed by capital expenses promoting that efficiency, but their wages should trend in the same direction.

Less hypothetically: let's say Cyberdyne's powered exoskeletons become standard for bricklayers, who can then work 20% faster. Since there are plenty of bricks to lay, buying an extra hour of bricklaying now creates more value, and remains profitable at a higher cost. Bricklayers won't simply collect all the extra output value because the amortized cost of the suits has to be covered, but we'd still expect them to get a raise. And if the new tech increased productivity at a lower capital cost per unit than existing tech, the percentage of output captured by labor could even rise.

Now, there can be out increases that don't involve labor productivity, anything from automating away jobs to finding cheap new sources of raw materials. People sometimes confuse the terms and compare GDP or overall productivity to wages, in which case you're right that there's no intrinsic linkage. (Although in the long run, labor's percentage returns tend to outweigh fixed-value changes like trade agreements.) But looking specifically at labor productivity, which should track wages, we still find a close trend seems to abruptly break around 1970.

When did China enter the global market? Am I the only one to think that this might be a natural cause of an extreme growth in world-wide working population? I think we are already through the worst parts and the dividends are beginning to pay.

I have thought that for a long time, too. It's natural that, on a global scale, developed-economy wages would appear to "stagnate" if developing-economy wages are increasing while competing for the same jobs.

Hmm. If the ngram "Chinese manufacturing" started exploding in books in the mid 80's we can assume the phenomenon started exploding a few years before that.


Early 1970s. Nixon visited China in 1972. Don't forget that China had to industrialize first - it was initially importing equipment from the US. Imports into the US at the time were more likely to come from Japan, Taiwan and Korea. Seems a to be a bit too late to explain the timeline, but it could be a factor - OTOH, given that China's workforce is no longer expanding then your theory would predict that wages will now stop stagnating but that does not seem to be the case?

Returns on investment always exceed wage growth. And as wealth concentrates, the effect is cumulative even over generations. It happens to be tech. It could just as easily be empire.

There was a moment after the world wars when this was intentionally compensated for and now it isn't. There is no William Beveridge, no Roosevelt brain trust and, Keynesian is apparently a bad word now.

I think one of the biggest concerns that governments are having is that the more you try to re-balance wage stagnation and wealth, the less competitive you are in the world, leading to other types of stagnation.

Intuitively this seems quite reasonable.

Yet the period 1946-1973 saw enormous growth in all western countries and wages kept up with growth during that time.

Of course, it seems likely there are government interventions that damage growth. But apparently there are some that don't. In particular, progressive tax structures and social safety nets don't seem to.

This is really great!

I have to toss something in re: unionization and the percentage it may explain.

Executive salaries have exploded while worker salaries have stagnated. Could this be because executives by virtue of the social networks they belong to are effectively unionized? Unionization of executives is not necessarily explicit, but the executive pool is smaller and more tightly connected and therefore executives will tend to behave more like a coherent social group. The worker pool is enormous, more diverse, and far less organized with far less opportunity for "out-of-band" social connection.

It's worse than it looks when you add massive education debt and in states like California we have seen the vast share of tax increases landing on wage earners plus incredibly high rent.

Yes, I'm not sure if the linked post discusses education debt. Even if wages increased 50% more than we think due to inflation issues, as the blog post claims, I don't know how a slightly better wage makes up for vastly increased education/housing spending. I don't know if the CPI or productivity account for either of those, either.

>>"We shouldn’t dismiss this as irrelevant, because many things that close only a small part of the gap may, when added together, close a large part of the gap. But this doesn’t do much on its own."

I'm not saying is not true, but I find this idea highly suspicious when there is a clear trend that start at some point.

I mean, what are the chances that many independent things move the trend, in the same direction at the same time, every year?.

The author addresses this in the conclusion, and is also suspicious, but presents some possibilities that explain it.

"This surprises me, because the dramatic shift in 1973 made me expect to see a single cause (and multifactorial trends should be rare in general, maybe, I think). It looks like there are two reasons why 1973 seems more important than it is...."

He discusses this point in his conclusion. He was also expecting to find a single, clear factor but didn't. Even if multiple factors causing a single large change is relatively rare, we'd still expect to see it sometimes, and he's arguing that this is one of those times. I found the argument relatively convincing.

I wonder if there's an impact from the increase in startups? Since most early employees are getting paid in equity rather than real dollars wouldn't there be a stagnation for a few years until the equity is transformed into cash?

Also any conversation about wage stagnation has to take into account collusion, in recent years Google, Intel, Adobe and others were avoiding poaching each other's employees.

Of course, if this continues long enough...

At some point the workers rebel, and bring back the guillotine. Or something worse (see Soviet Russia). This can't continue long term.

Populist politicians promising to make things better relieve some of the pressure in the short run, though.

Of course any discussion about labour vs capital share of gdp needs to talk about land as well. So ‘5. Could Wage Decoupling Be Explained By Increasing Labor-Vs-Capital Inequality?’ would be more interesting with land.

That also came up in the discussions around Piketty.

I've thought about this for the past decade or so. It's obviously going to be many simultaneous factors for any type of decoupling this pervasive in society, but I tend to simulate things out in my head and here is what I've largely ruled in and out.

1. It isn't gross executive compensation. Holding everything else constant, executives are very good at negotiating the very best deal for themselves and corporations live and die by the law of the jungle. These two forces balance each other out. Higher executive compensation probably means that executives are more important than they used to be, which I would expect with an increasingly technological society.

2. That said, executives and the wealthy class pay way less in tax than they used to because they're less tied to a region which means they're less civically minded and they're more able to region shop for lower tax rates, leading to a race to the bottom.

3. Computers automate tasks that used to require a high school education. IBM is IBM because they started with cash registers before computers came along. There used to be a banker with a real education in every single town. There isn't anymore and we (especially we!) know why.

4. Communications—starting with the telegraph, but certainly not ending there—make locality irrelevant. Combined with the forces of capitalism (e.g., comparative advantage, re-invested returns) this hyper concentrates specialization.

5. Standardized shipping, especially sea containers. The Chinese government's greatest insight was the importance of physical freight and they leaned in hard to become the centre of the worlds manufacturing by essentially[0] subsidizing it.

6. Many decades of low interest rates, on the half-baked ideas of Keynesian theory of productive capital. Surprise! It turns out that injecting liquidity doesn't necessarily expand business activity. There's plenty of cash locked up in corporations and monied investors. They're desperate for return, but the hyper specialization issue stops them from getting alpha once they hit the market's carrying capacity. Instead these low interest rates go to...

7. Asset bubbles and arms races! Everyone needs a home. Everyone wants a good education at a prestigious university. People buy whatever sugary drink advertises the most. Inflation isn't really low. When a small family home in Toronto costs more money than the median family makes after tax in twenty years we know its bullshit. The inflation rate is papered over because of cheaper manufacturing due to technological progress and international trade, but it doesn't work for housing and many other things.

8. The more complex world is inherently less governable by democracies. A ballot only has a byte of information tops and it only operates over a period of four to six years. This is why lobbyists win, especially in larger democracies like America where the ratio of governed to lawmakers is higher.

9. Surveillance capitalism relies on inexplicable insights and returns. This hyper centralizes wealth whilst simultaneously shrouding the mechanism.

[0] Solving coordination problems is a form of governmental subsidization even if the government in question makes a huge profit. Canada does the same with forestry. I don't know how to square it with global trade.

That all sounds like it's well thought out - two questions.

So your entire thing is that it's a race to the bottom? What is the purpose of it all then, and how do you think this goes for the next two or three decades?

Wages have been "decoupled" from productivity because they weren't be coupled in the first place. They were correlated because productivity and economic growth are correlated and economic growth and demand for labor are correlated.

However, wages (like all other prices) in a market are set by supply and demand. Wages will rise to meet demand but not higher, irrespective of productivity. Furthermore, productivity increases through automation decrease demand for human labor and therefore suppress wages.

This, exactly. As technology continues to move forward and make things even more efficient, I would expect this gap to continue to widen. I'm confused as to why anyone would want it to remain linked. As the gap widens, the demand for Universal Basic Income will rise and gobble up the working class and, eventually, even the most complicated jobs, until money is considered worthless and all basic needs are met by robots. Given the option to have robots do all the work and humans reap all the benefits (besides skynet), who wouldn't take it?

> As the gap widens, the demand for Universal Basic Income will rise and gobble up the working class and, eventually, even the most complicated jobs, until money is considered worthless and all basic needs are met by robots.

The problem here is that nobody knows when we'll get there, if at all. UBI seems like a solution designed for a society where most people have been displaced from the need to work, but it doesn't look like society is there yet. In the meantime we still have people who are struggling to even exist. If the gap to achieve Full Automation in most sectors is multiple generations, you might long reach social unrest before you can even "justify" UBI from a political perspective.

Right now billions in capital investment haven't quite mastered the art of getting cars to navigate roads by themselves, and some industry leaders (Waymo CEO) are skeptical we'll ever get level 5 autonomous cars. And this is all for one single and self-contained task in the human existence (which doesn't even rely on human appendages! try to imagine automating handiwork).

If 70% of people are without work, UBI is an obvious solution. But if 1-10% of people are without work and 40-60% are paid peanuts for shit jobs, what's the solution? If UBI is still best here, how do we justify that to society without appealing to Full Automation?

A possible justification is crime.

I believe it is cheaper to pay someone enough money to allow them to survive and educate themselves, than to put them in a position where they weigh the risk of being caught with a crime with the risk of them/loved ones dying due to not having enough wealth to purchase the things they need.

Currently progress leads to more poverty as wealth is concentrated to landowners collecting rent. Every increase in productivity is consumed by increases in rent payment. Holding land and waiting for it to become valuable is absolutely insane to me. It is theft from the common good to allow that speculation of land, out premium finite resource.

Without land and labor combined their would exist no capital.

By taxing land value, increases in productivity are swallowed up by increases in taxes, leading to increases in social wellbeing.

I believe, along with most people who would call themselves Georgists, that private property is theft from the public

If you look at the results of welfare programs, it would be hard to argue that they reduce crime. Crime isn't just about subsistence money. For a certain segment of the population, it's the only way to make significant amounts of money and also to get some sort of respect, status and power.

If criminals could just be educated and get jobs and become ordinary members of society, then our social programs would work. They don't, because from a sober perspective, if you're already a criminal (or so inclined), then crime is more attractive and ordinary members of society appear as the powerless suckers they really are.

Indeed, the collective bargaining power of employees is less than it used to be. This will likely become more and more an issue in the current century as the benefits of automation will line mostly the pockets of the owning class. The current concept of fairness of pay and trust in market forces is evident in these comments as well. I think at some point there needs to be some adjustment there. Maybe that will happen before the middle class disappears completely.

>Maybe that will happen before the middle class disappears completely.

I doubt it will. How much of human history even contained a 'middle class'? What tells us that it's anything more than just a blip on the radar and an odd one-off outlier?

This is a very important point. The graphs in the original article -- especially when taking into account those from other countries -- essentially shows that at some point the increase of productivity is due to automation, and that the human component in the workplace is becoming less relevant.

> However, wages (like all other prices) in a market are set by supply and demand.

This should be the case, but minimum wage laws completely screw up the market. The unintended consequences of minimum wage result in almost the opposite effect of what they are intended to achieve. They keep wages artificial low, and increases in minimum wage push the costs of all goods and services upwards, as well as cause disemployment.

Wages have been "accidentally" coupled to minimum wage policies which is why there is less correlation with productivity. How this article can be so long and barely mention its effects baffles me.

The article devotes significant time toe discussing the effect of minimum wage policy under point 8. He makes a convincing argument that it doesn't explain much of the effect.

"significant time?" The author dismisses it in a single paragraph because of a single chart which shows that stagnation is not only among the lowest earners. Yet the same chart clearly shows that the same level of stagnation is not present among highest earners. Minimum wage laws do not just affect minimum wage earners. They affect everyone. Minimum wage earners are hit the worst, despite the laws being intended to help them.

It also affects inflation, which the author posits as the leading cause of stagnation (misprediction of inflation). Minimum wage causes inflation, and the effects of it are unpredictable, because you don't know who is going to raise their prices to make up the additional employment costs, or who is going to lose their jobs because smaller businesses downsize because they can't afford the increased minimum wage costs.

It's because of femi nism: now every household has two wage earners, so it makes sense for wages to split in half.

I always find this very interesting. You feel strongly enough about your point that you need to say it (albeit using a throwaway account). My reaction to your point as well as some comments above about an influx of immigration is that I think it is worth discussing. Instead of discussing it though, you make a quick remark that intends to blame wage stagnation solely on the enfranchisement of women when the issue is very likely more complex and can perhaps can be resolved without alienating and stripping the rights and agency of 50% of the population.

But the quick remark and the way you phrased it makes it seem like you just have something against women in the workplace, I'm guessing you feel threatened in some way. I don't think it would be a stretch to assume that you think the abolition of slavery also affected wages similarly.

This is not what the data show if we overlap female participation in labor markets with the graph of the article.


At 1948 the US had around 25% women in the work force. By 1973 that number is around 50%. The article say that wages increased proportionally with production between 1948 to 1973, and only after 1973 started to drop.

There is just no relation between those two graphs that support the claim that that one caused the other.

Because one wage earner cannot do housework or child rearing or other behaviors now(as they are working another job), wouldn't that cause a roughly 1:1 ratio of missing worker to demand for a new job to take care of the labor necessary? e.g. No time to cook, so buy more food on the go, no time to clean, so buy labor to clean, no time to organize home, buy labor to organize, etc.?

That's correct, but none of those three people would then make as much money as the original single wage earner. And the couple wouldn't be getting ahead nearly as much as one would hope, since they have to pay for all that extra labor.

This does not mean the conclusion drawn: that wages are split in half?

This is a good point. It's simple economics. If there is a sudden rise in worker supply, but not a corresponding increase in demand for those workers, wages must fall to accommodate the influx.

No, it's not a good point. Do you think women were just shuffling their feet at home before they became wage earners? Technological improvements that reduced the total domestic workload for a household made it feasible to have two earner households (as a side note it didn't eliminate domestic work which working women continued to do disproportionately to men to this day).

So the total labor required to live and work successfully in industrialized nations dropped but instead of that leading to more individual wealth it just meant that households now had allocated more of their labor to wage labor compared to before where half or more of the labor of a household was simply unacknowledged and unpaid.

And it should be noted that poor women had been working. For less compensation than men, while performing domestic labor. Middle class and upper class women getting jobs was another story.

Boo, hiss. Feminism. What an odious little comment thread.

> What an odious little comment thread.

Why? You're the one who injected the "Boo, hiss".

wages are drawn from the output of workers labor, not the other way around. At most, wages are an advance on the return a worker would expect from their labor. Subjugating half the population into not being part of the labor force is not an aspect of a free market in my opinion.

While I wouldn't be surprised that having two wage earners, and introducing a glut of new workers into the pool would certainly increase job competition, I really think that blaming feminism is pretty simplistic - it could be that culturally our desire for more required that we needed the spending power of two adults (not knowing that would hamstring our later earning potential), or it could be that due to a drop in birth rate due to modernization and standard of living increases women simply had less reason to stay home and more time for out of home activities.

Aaaah, scott! So much information! It's a long read, and I have work to do, but ... is there a summary?

I'm glad for wage stagnation, so long as inflation stays down.

For people at or near retirement, it's a great thing. Nothing erodes savings like rising prices.

You just have to ride that fine line between oppressing people enough to enjoy cheap living, and oppressing them so much they decide to rise up and stick a pitchfork in your eye.

Wage stagnation that comes attached to increase productivity could be offset by a shorter work week.

I mean if you are ~2.5 times more productive but the wage can't increase due to other reasons, why not take different actions to consider employee happiness just just employer profits?

You could also lower the price of the items sold so that the average consumer can afford more stuff

This only works for some goods. Critically, it doesn't seem to be possible to do this for housing, health care, or education. Which means that stagnant wages increasingly put these things out of reach.

I'm not an economist but can imagine forcing the lowering of prices could have far more impact on the whole economy, not all good. Off the top of my head it would lead to shortages and thus to increased prices. You'd have to produce more while having less money available to invest in that. Possibly a whole lot more.

But reducing the work week only impacts the employer's profit via slightly decreased productivity. On the other hand with 3 free days per week you'd be more likely to put more money back into the economy.

The problem is today's balance of productivity vs. wage is only perfect for the employer and not much else is taken into consideration. What kind of bargaining power do employees have to change this?

It would only lead to shortages if at the current price there is a perfect match of buyer to product with no waste, AND no capacity to produce a larger volume of supply. That's hardly ever the actual case.

The price is dynamic and usually set by supply and demand. Is there a reasonable way to enforce a decrease? The work week and day have been historically static and more importantly arbitrary. To my knowledge there's very little to support a specific number of hours (per week/day) is optimal, except for upper limits dictated by the limitations of human biology.

Can price drops be forced on things that are in very limited supply, like homes in coveted areas? Or even on products or services that already have very low margins? Would the seller be there next year to tell you how it went?

The technicalities of forcing a price drop feel out of reach while shortening the work week has been done successfully twice already just in the past 100 years. Profitability is still higher than ever.

Items are just about as cheap as they've been. Instead of saving the extra money, most people simply buy more crap.

I get that that other costs (healthcare, education, housing) have risen so much that the cheap goods can't offset them. But, it seems that every little bit would still help, even if things were net-worse.

Venezuela did exactly that.

I believe the discussion is around wage stagnation after correcting for inflation.

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