Saturday, April 28, 2012

Producing more for less

Many workers are facing tough times. The typical American family incomes grew by less than one half of one percent between 2000 and 2007. Bourgeois economists assure us that when workers produce more per hour of work, our earnings should go up correspondingly. Since 1973, that just hasn’t been happening. Productivity has risen, but the pay of the average worker has stagnated. That simple fact explains why younger Americans today aren’t doing any better than their parents’ generation, and sometimes worse. Americans are not reaping the rewards of  hard work.

Income inequality has grown over the last 30 years or more driven by three dynamics: rising inequality of labor income (wages and compensation), rising inequality of capital income, and an increasing share of income going to capital income rather than labor income. As a consequence, examining market-based incomes one finds that the top 1 percent of households have secured a very large share of all of the gains in income—59.9 percent of the gains from 1979–2007, while the top 0.1 percent seized an even more disproportionate share: 36 percent. In comparison, only 8.6 percent of income gains have gone to the bottom 90 percent. Between 1979 and 2007 the annual earnings of the top 1 percent grew 156 percent, while the remainder of the top 10 percent had earnings grow by 45 percent.

Wage inequality at the bottom—called the “50/10 wage gap” because it reflects wage differences between the median and bottom 10 percent—has primarily been driven by periods of high unemployment and the erosion of the minimum wage. The continuing growth of the wage gap between high and middle earners is the result of various laissez-faire policies (acts of omission as well as commission) including globalization, deregulation, privatization, eroded unionization, and weakened labor standards. The gap between the very highest earners—the top 1 percent—and all other earners, including other high earners, reflects the escalation of CEO and other managers’ compensation and the growth of compensation in the financial sector.

The highest earners have captured a disproportionate share of pay gains. Average pay, which factors in the salaries of chief executive officers and NBA stars, has gone up faster than median pay, which is the pay for the mythical person in the middle. Half of all workers earn more than the median and half earn less. Median hourly compensation isn’t dragged upward by a few big earners at the top. Adjusted for inflation, it grew just 11 percent from 1973 through 2011, while productivity grew 80 percent. During the 1973 to 2011 period, real median hourly wage increased 4.0 percent, and the real median hourly compensation (including all wages and benefits) increased just 10.7 percent. If the real median hourly compensation had grown at the same rate as labor productivity over the period, it would have been $32.61 in 2011 (2011 dollars), considerably more than the actual $20.01 (2011 dollars).

Owners of capital are taking a bigger share of income. Ordinary American workers get most of their pay in the form of wages and salaries, while the wealthiest Americans get more of their pay in the form of income on capital, such as dividends and capital gains. The owners of capital have been claiming a bigger share of the national income. That trend shows up in labor’s share of overall compensation, which has fallen from 64.3 percent in 1973 to 58.5 percent in 2011. The rise in the share of capital income in the corporate sector has been driven by a comparably large increase in “profitability,” or the return to capital per dollar of plant and equipment. The shift of income from labor to capital was most evident in the period of rising inequality of wages from 1979 to 1995 and again from 2000 to 2011, a period characterized by rising wage inequality and excessive unemployment. Therefore, the improved profitability and shift of income to capital has occurred alongside the general weakening of workers’ bargaining position in the labor market.

Consumer prices have risen faster than prices of what workers produce. The idea here is that workers’ pay is connected to what they produce, which includes some consumer goods and services but also a lot of things that consumers don’t buy, such as industrial machinery and business-to-business services. Prices of those things have gone up slowly, so the compensation of the workers that produce them has gone up slowly. Consumer prices, meanwhile, have gone up faster. So pay hasn’t kept up with inflation in the consumer’s market basket.

The “typical” worker is not benefiting fully from productivity growth. The author, president of the Economic Policy Institute, writes in conclusion "It is hard to see how reestablishing a link between productivity and pay can occur without restoring decent and improved labor standards, restoring the minimum wage to a level corresponding to half the average wage (as it was in the late 1960s), and making real the ability of workers to obtain and practice collective bargaining."

Real wages have stagnated and health and pension coverage has eroded is the fact that collective bargaining power has decreased, and remains under assault. Union coverage has fallen dramatically over the last 30 years, with the share of unionized wage and salary workers dropping 0.4 percent per year from 1979–2010. This falling rate of unionization has led to lower wages, as illustrated by the union wage premium, which is how much unionized workers’ earnings exceed those of comparable nonunion workers. In 2007, the premium was 14.1 percent. Additionally, unions have positive effects on the livelihoods of all workers by raising wages at the bottom of the wage scale more than at the top, thereby shrinking wage inequality.

Cutting to the chase and without the academic language - it means we have to escalate and intensify the class struggle and extract more in wages share from the capitalist's "profits" - surplus value. But we must be minded that it is low unemployment that boosts the  bargaining power at the middle and bottom of the wage scale which prompts employers to raise wages and offer better benefits to keep workers who may otherwise leave for other, possibly better-paying, jobs. Whereas for the capitalist, the recession may have waned,  for the working class there are still far too few job openings throughout the economy. Simply put, until the labor market is recovers the prospects for all workers, including low-wage workers, will be dim.

Sources: 1 2 3

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