On January 15, 2015, Robert Reich writes:
Jobs are coming back, but pay isn’t. The median wage is still below where it was before the Great Recession. Last month, average pay actually fell.
What’s going on? It used to be that as unemployment dropped, employers had to pay more to attract or keep the workers they needed. That’s what happened when I was labor secretary in the late 1990s.
It still could happen – but the unemployment rate would have to sink far lower than it is today, probably below 4 percent.
Yet there’s reason to believe the link between falling unemployment and rising wages has been severed.
For one thing, it’s easier than ever for American employers to get the workers they need at low cost by outsourcing jobs abroad rather than hiking wages at home. Outsourcing can now be done at the click of a computer keyboard.
Besides, many workers in developing nations now have access to both the education and the advanced technologies to be as productive as American workers. So CEOs ask, why pay more?
Meanwhile here at home, a whole new generation of smart technologies is taking over jobs that used to be done only by people. Rather than pay higher wages, it’s cheaper for employers to install more robots.
Not even professional work is safe. The combination of advanced sensors, voice recognition, artificial intelligence, big data, text-mining, and pattern-recognition algorithms is even generating smart robots capable of quickly learning human actions.
In addition, millions of Americans who dropped out of the labor market in the Great Recession are still jobless. They’re not even counted as unemployed because they’ve stopped looking for work.
But they haven’t disappeared entirely. Employers know they can fill whatever job openings emerge with this “reserve army” of the hidden unemployed – again, without raising wages.
Add to that, today’s workers are less economically secure than workers have been since World War II. Nearly one in five is in a part-time job.
Insecure workers don’t demand higher wages when unemployment drops. They’re grateful simply to have a job.
To make things worse, a majority of Americans have no savings to draw upon if they lose their job. Two-thirds of all workers are living paycheck to paycheck. They won’t risk losing a job by asking for higher pay.
Insecurity is now baked into every aspect of the employment relationship. Workers can be fired for any reason, or no reason. And benefits are disappearing. The portion of workers with any pension connected to their jobhas fallen from over half in 1979 to under 35 percent today.
Workers used to be represented by trade unions that used tight labor markets to bargain for higher pay. In the 1950s, more than a third of all private-sector workers belonged to a union. Today, though, fewer than 7 percent of private-sector workers are unionized.
None of these changes has been accidental. The growing use of outsourcing abroad and of labor-replacing technologies, the large reserve of hidden unemployed, the mounting economic insecurities, and the demise of labor unions have been actively pursued by corporations and encouraged by Wall Street. Payrolls are the single biggest cost of business. Lower payrolls mean higher profits.
The results have been touted as “efficient” because, at least in theory, they’ve allowed workers to be shifted to “higher and better uses.” But most haven’t been shifted. Instead, they’ve been shafted.
The human costs of this “efficiency” have been substantial. Ordinary workers have lost jobs and wages, and many communities have been abandoned.
Nor have the efficiency benefits been widely shared. As corporations have steadily weakened their workers’ bargaining power, the link between productivity and workers’ income has been severed.
Since 1979, the nation’s productivity has risen 65 percent, but workers’ median compensation has increased by just 8 percent. Almost all the gains from growth have gone to the top.
This is not a winning corporate strategy over the long term because higher returns ultimately depend on more sales, which requires a large and growing middle class with enough purchasing power to buy what can be produced.
But from the limited viewpoint of the CEO of a single large firm, or of an investment banker or fund manager on Wall Street, it’s worked out just fine – so far.
Low unemployment won’t lead to higher pay for most Americans because the key strategy of the nation’s large corporations and financial sector has been to prevent wages from rising.
And, if you hadn’t noticed, the big corporations and Wall Street are calling the shots.
I do not think that Robert Reich really understands the impact that technological invention and innovation has on workers. The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who OWN productive capital assets. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.
Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 239 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advances amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.
People invented “tools” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention and innovation. Most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, free-market forces no longer establish the “value” of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”
Furthermore, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. If both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. The American people and its leaders need to stop pretending to believe that labor is becoming more productive, and stop ignoring the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the American economy.
To put this in context, it is important to briefly note that throughout history, man has endeavored to overpower the time constraints of physical and biological processes. It is now an accepted fact that accelerated scientific and technological innovation has directly led to a speeding up of all physical and social processes in the name of progress. The competitive drive has led to a frantic national and international chase for more efficient methods of production and distribution. In the process, humanity has pushed to develop even more powerful technologies, on the assumption that such technologies would accomplish more and more useful functions in less time. The results have been a dramatic acceleration of change and concentration of wealth ownership.
