Ezra Klein indirectly rebuts my post from last night (of course I’m under no illusion that he has read it). He argues that it’s hard to pay workers well in America. I think he’s wrong, but this is the crux of his argument:
So then the question is why were manufacturing jobs traditionally high-wage jobs? There seem to be a few answers to this (unions, industrial policy, capital intensity, etc), but the one that I’ve found most persuasive is that they could be. To a degree I really didn’t understand before picking through the endless tables and graphs in ‘Where Are All The Good Jobs Going?‘, high wages were a choice that businesses could make. Some of them were forced into making that choice through unions and some of them were lured into making that choice because they wanted the best workers. But a lot of them just made that choice because, well, they could…
Foreign competition has made the wage gap between different sorts of workers vast: Paying American workers a good wage while the other guy pays Thai workers a bad wage leaves you at much more of a competitive disadvantage than paying American workers a good wage while the other guy pays American workers a mediocre wage. Unions are partially in decline because of policy, but they’re partially in decline because these forces make it very hard for them to survive. Bottom line? It’s hard to pay workers well in America now, even if you want to…
I’d really like to find an answer that’s more interesting than “education” here. And maybe I will. I’m toying around with the idea that we’re in a weird interregnum period in which a lot of other countries have become rich and educated enough for their workers to compete with our workers but not quite rich and educated enough for their workers to begin buying things from our workers, and that this’ll largely sort itself out as time goes on.
I don’t think Ezra’s last paragraph will bear much fruit- these forces of globalization seem unlikely to equilibrate. Regarding his fallback of education, I think most of my rebuttal comes in my post from last night, which of course is completely ripped off of Larry Mishel’s excellent work. The important fact, though, is that profits have been doing just fine- yes, they fell during the crisis, but they have soared in the recovery.
Profits show that businesses can choose to pay better; however, because labor is weak, they don’t, and because their political power is strong, they have to give back relatively less in corporate taxes. The power gap is the reason why businesses can afford to pay better wages, and create more jobs, but choose not to. The power gap will not go away on its own, but will only accelerate without a political movement to restructure our economy.
As always, price is related to supply and demand. Today, there is a vast supply of unemployed people, ready, willing and able to perform almost any job. Labor supply high, demand low = low price.
Also, the supply and demand for specific products/services must be considered. You might be the only person in the world qualified to toss dirt on rugs, but there isn’t much demand for that job. Product supply high, demand low = low price.
In short, it’s supply and demand.
The role of education is to reduce supply, i.e. the supply of workers qualified to do specific, valuable jobs.
Rodger Malcolm Mitchell
First, I agree with you, Nick. Profits are high, as is exec compensation. There is no reason why a much larger share of profits could not be returned to workers instead of being used to re-purchase stock. This latter only benefits those at the top of the pyramid who hold lots of options.
Second, if this is a ridiculous question, my apologies. But the wage-scale in Germany is very high. And yet, Germany is an exporting machine. Companies there seem to have no problem competing in the world market.
How to reconcile that with our ‘need’ to cut costs in order to ‘be competitive’? From where I sit, it sure looks like cutting costs is done simply to increase the share going to the economic elite.
I agree in part with both of you. Rodger- the supply and demand forces in the labor market have been historically checked by power among workers. And Gus, extraction power was also previously checked by unions. Of course we don’t need to cut costs to be competitive- productivity is still high. But Rodger, I don’t understand how education reduces supply.
Nick, I misspoke. Education increases supply.