Tools that increase productivity however do come from improvements made by workers - namely the workers whose labor is absorbed into the firm that sells the technology.
The money to pay for the machine comes from revenue earned by workers. The company has to value the employee's work more than their wage for this to happen - so there is selection pressure for willingness to accept low wages; lower wages means greater profit; greater profit means greater precarity... etc. Technology devalues worker specialized knowledge by rendering it less useful, while keeping production at least constant (e.g. being computer-literate is as valuable as it is specialized)
Many fewer people (can) produce a disruptive technology compared to the number of people it displaces, but that does not exempt them from the same selection pressure. A technology firm that depends on outcompeting others in its sector still has to make its own productivity gains. They'd likely prefer to do with one inventor what they could do with two. Maybe very long from now there will be a kind of artificial intelligence/singularity perpetual motion machine that - because of its near-zero cost of tinkering to discover improvements in its self over the competition - no other firm can compete with. A cloud "SaaS-as-a-service" like John Lilly's fears of solid state intelligence (SSI)
That's kind of the contract between workers and their employer. Workers get short-term benefit of not having any risk, and employers take the risk but receive the long-term benefit of capital.
Does this really mean that the amount of profit the employer makes is an adjustment reflecting how little risk the employees take on because they didn't take a chance to start their own companies? With employees whose income they would then hypothetically make the same adjustments to?
It's not obvious that the employer is justified in protecting themselves from their own risks with money skimmed (relative to market value) from consenting employees. These workers allow it because they still prefer it to being unemployed or a contractor themselves. But in theory they are doing worse being a part of the company than if they did the exact same actions (magically disembodied from the company monad) would be compensated, if they took the risk for themselves. The employer's risk is if they don't find enough people who are willing to risk not taking enough risks!
If having more employees means having more sources of income, big employers would not have as pressing a demand to hedge against catastrophic events; so they would recalculate the risk adjustment fee built into wages. Rarely do you see large employers give their employees better wages to reflect the company getting past earlier stages of high risk.
Basically in the long-term the value to being a capitalist is getting others to pay you for working for you. The ability to suppress wages pays for this profit - and that ability comes from contracts being costly to arrange themselves. If we could reduce the cost of contractual work and more people did it, most if not everybody would be better off, except for the people profiting from mutually-satisfactory contracts being difficult to do often.
Taleb gives this a good treatment:
"If the company man is, sort of, gone, he has been replaced by the companies person, thanks to both an expansion of the gender and a generalization of the function. For the person is no longer owned by a company but by something worse: the idea that he needs to be employable
...
A free market is a place where forces act to determine specialization and information travels via price point; but within a firm these market forces are lifted because they cost more to run than the benefits they bring. So the firm will be at the optimal ratio of employees and outside contractors, where having a certain number of employees, even when directly inefficient, is better than having to spend much resources negotiating contracts.
...
an employee is a risk management strategy"
As the article points out, Japan has an unemployment rate of 2.8% and even there wages are not growing.
When the unemployment rate is that low, there will be no one waiting to take on the job if the worker quits.
This is the answer
Which should then drive an increase in wages. But it hasn't, and economists don't know why - or at least as far as this armchair economist has read ;-)
I agree that U6 and prime age labor force participation rates are both weak, and relevant to worker bargaining power, but to argue that U3 has no basis in reality is absurd.
If I’m looking for labor this month, my pool of applicants will be coming from the U3 pool, people who are actively looking for work.
High U6 unemployment suggests I might do better to raise wages slightly, rather than aggressively, if I urgently need workers.
But this is an unacceptable, or at least undesirable, outcome - for the majority of people anyway. If there is more wealth sloshing around the system, and fewer people involved in creating it, more of it should go to the person helping to create it. If this is what our economic system encourages our system is sub-optimal.
Survivorship bias. Amazon, Wal-Mart and Costco profits have been increasing. Profits of Borders, Mervyn's, The Limited, CompUSA, Linens'n'Things, Fresh'n'Easy, Payless Shoe Center, Blockbuster Video, Hastings Entertainment, Tower Records, FAO Schwartz, KB Toys, Circuit City and RadioShack - not so much.
Internet (or wide availability of catalog shopping combined with reasonable delivery options) concentrates things like retail or media distribution in the hands of the very few.
[1] https://fred.stlouisfed.org/graph/?g=1Pik [2] https://fred.stlouisfed.org/graph/?g=2Xa
https://fred.stlouisfed.org/graph/?g=74dI and https://www.bloomberg.com/view/articles/2016-09-28/health-ca... for more context.
Remove the tax deductibility of employer healthcare plans and watch the wage/salary graph magically grow, as the funds get reallocated. Sure, the worker now must buy their own health insurance, which potentially leaves them with even less disposable income than before, but the gross wage/salary graph will go up and to the right.
Everyone needs to be in their own individual/family insurance, group everyone together across the nation and move it away from business/employers and selective grouping. Employers do not pay your auto, home, liability insurance of your personal property, why should they have anything to do with your health, that alone is an invasion of privacy and not secure for workers when they can't work due to health.
Allowing employers and insurance companies to fix prices in backrooms is part of the problem of wildly inflating healthcare costs due to bad insurance grouping. It also let's companies off from wage increases by saying it is all part of "real compensation" when in actuality the velocity of money is at an all time low[1] in a consumer economy, red alert...
REAL compensation will always exist.
Simple systems, like first order approximations, can always do away with complex balancing constants, or recursive functions/costs, and feedback loops.
Similarly, in any real world situation, some fraction of firms will always find a way to plump up their employee compensation, without having to put a real cost to it.
So for example -
Major tech firms have on campus gyms, doctors, free food and so on. (We'll be ignoring the fact thaty they have campus-es in the first place)
Startups do it by offerring risk/reward tradeoffs.
In India I know Firms that provide complimentary transportation - and manage the insurance for that transportation.
Pilots and their families fly free, hospitals give admin staff better health care access, so on and so forth.
These are descriptive, non exhaustive examples.
The point being made is that Real Compensation in the real world will always have to be a calculated/inferred field/value.
Cash/pay let's YOU decide what benefits you need.
Yes there may be freebies and certain benefits available such as flying for free if there is a seat available, free food, or free passes to places you work etc, these are designed to keep you at work or involved as well.
However healthcare and insurance should NOT be managed by companies that you don't work at typically longer than 1-2 years on average. Should our companies also pay our auto, home and other insurance? so we can change them all when we change jobs? Benefits should only be freebies that aren't private.
You also have to be careful with benefits if they go too far i.e. in the future work will have apartments on campus like in China and a throwback to feudal/sharecropper kingdoms, then your company completely owns you. Better to just get pay, freebies and handle insurance/health and your own private business on your own.
The problem with real compensation is it is not evenly dispersed, cash/pay is. The real value also needs to be spent. You might have benefits that only 25% of a workforce take advantage of, well the 'real compensation' includes everyone using that, it is a bit like a gift card that you only spent a portion of. It isn't real money and sometimes costs the company little compared to the value that is stated.
They are economically easier, because the firms I know can bring economies of scale to bear on them, which I can't do on my own.
But that's opinion.
You are arguing the merits of Real Comp - as if there is some world in which Real comp will NOT exist.
The issue I am pointing out, is that this is a theoretical world, like round cows.
In the real world, this will always be the case, so aside from a rhetorical device, or thought experiment to examine certain models, its not a practical item.
There will always be a situation, Such that, firms in different industries, will possess capital and service advantages, which make it easier for them to pay X$ in costs to the firm, and provide (1+C)*X$ of benefit to their employees.
You can't escape that.
Therefore, you must deal with it.
- gross wages and salaries earned by employees and payable in cash.
- cash allowances, overtime pay, bonuses, commissions, tips, and gratuities if paid by the employer to the employee.
- remuneration in kind paid by the employer to the employee valued at purchaser's prices, including meals and drinks, personal accommodation, uniforms worn outside of the workplace, vehicles or other durables provided for the personal use of employees, free personal travel, free personal fuel, recreational facilities, transport and parking subsidies, and creches for the children of employees.
- real or imputed social contributions and income taxes to government payable by the employee in respect of employment. the value of the social contributions in respect of labor hired, which are paid by employers – these may be actual social contributions payable by employers to social security schemes or to private funded social insurance schemes for employees; or imputed social contributions by employers providing unfunded social benefits.
- income of students from paid work, including the value they contribute through work for an educational institution.
- income received by shareholders who are also employees of the corporation, and who receive paid remuneration (e.g. stock options) other than dividends.
- income by outworkers who are paid by an enterprise for work done.
- the value of the interest foregone by employers when they provide loans to employees at reduced, or even zero rates of interest for purposes of buying houses, furniture or other goods or services.
My guess is you don't take advantage of all those items but your 'real compensation' includes it. Companies are paying you 30% in benefits that they retain. Yes there will always be freebies, but those should just be that freebies, nothing to do with personal health insurance and healthcare. Just pay people more.
Making insurance deductible is also advantageous to large caps over small businesses - Amazon will likely negotiate a better insurance package than Joe's E-Commerce Emporium, and all else being equal rational employees will choose Amazon for their amazing benefits. Which then negatively impacts new business creation, small business employment, entrepreneurship rates, geographic mobility, etc.
Benefits on the job were probably needed at a time but currently they are favoring large caps like you mention. This is ultimately the worst legacy thing that unions left behind eventhough they helped pay go up and brought some good things. Unions should have always been on more pay not benefits. We have got to start leveling the playing field for small/medium business and even self-proprietors. Removing health insurance from employers is key, this will also help being able to change jobs more frequently and not contribute to ageism so much.
Insurance companies group people by company usually so small companies are high risk, and individuals even more, the worst way to spread risk. Plus as companies grow more and wages grow less, companies will start to reach a feudal/sharecropper like state where you starting a business is nearly impossible because there is no way to compete.
Which then negatively impacts new business creation, small business employment, entrepreneurship rates, geographic mobility, etc.
Agreed, this also makes it much easier to start companies in places other than the US that also have a single-payer/individual or private market option and not require the employer to provide it. Employers handling our healthcare and benefits really has added drag to our economy and entrepreneurial/innovative spirit.
Agree. Unfortunately, there's zero political will to do this. Republicans seem to be hell-bent on destroying Obamacare as a concept, no matter the consequences, and view decreased number of sign-ups and decreased number of insurance sellers, as positive developments and proof that the system "doesn't work".
Democrats would surely welcome decoupling of employment and health insurance, right? Except ACA mandates employers with headcount 50+ offer health insurance, which robs the exchanges of a fairly healthy portion of the population that's fit enough to be in the workforce (prior to ACA mandatory health coverage applied to employers with 100+ headcount).
Some employers have run the numbers and figured out that if they paid the ACA fines and transferred the employee health coverage to a public exchange, their balance sheet would still be better off. Double win for a federal government - not only there's extra revenue in terms of fines (the money that previously went to a private insurer), the exchange gets bolstered with a significant number of new participants, which dilutes the risk pool and hopefully make everyone's coverage cheaper. Not so fast, said Obama administration, and slapped an extra fine to discourage such behavior https://www.nytimes.com/2014/05/26/us/irs-bars-employers-fro...
Which is crazy if you think about it, decentralization was supposed to allow others in but really the internet gave the bigger companies such an exponential advantage that they ate everything else. Combine that with wage stagnation since 2000 and the consumer economy dwindled and thus killed off many players compounded with the innovation and technology of the web + mobile.
Citation needed.
I'm under the impression most of the productivity gains since the early 1990s were due to large capital improvements, which aren't paid for by employees. And productivity increases due to decreased costs thanks globalization and open source software.
> yet they have been the ones benefiting from the gains
I think lots of arguments ignore the fact that health care has outpaced wages and CPI by more than 100% in the last 15 years. Companies still pay the lion's share of health insurance costs for employees. You don't see your paycheck getting bigger, but your total compensation (if you get employer sponsored health insurance) has risen.
Money doesn't magically increase productivity, those gains came from that money going to very smart people who created and/or applied technology to increase productivity. They're called workers, and they are the ones who increased productivity, not the capital holders.
Throwing a billion dollars at a problem to solve it only buys you people capable of solving it, it doesn't mean you solved it.
This is wrong. While the majority of people haven't been seeing an increase in wages, the upper-middle class has[1]. Workers don't see things like "total compensation" when it all goes to insurance premiums. If the lower classes continue to experience a declining quality of life while the upper classes live opulently, there will come a time of destabilization. Don't you understand this? Shouldn't we try to avoid that?
[1] http://money.cnn.com/2016/06/21/news/economy/upper-middle-cl...
> I'm under the impression most of the productivity gains since the early 1990s were due to large capital improvements, which aren't paid for by employees.
Expanding here, the improvement in information and communication technology (one aspect of capital investment) has dramatically increased the effectiveness of intelligent management at the top. They have vastly more signals, and vastly higher granularity, with which to make decisions.
I don't have data one way or another, but I could believe that managers' productivity-per-unit-talent has improved more than line-workers' productivity-per-unit-talent.
More to the point, under the present conditions only the kids of capitalists themselves and the kids of some privileged social strata (like IT people's kids) are free to fulfill their intellectual potential 100%, because they don't have to worry if their parents have enough money for rent/putting food on the table/education, and as such they can spend their late teens - early 20s (when they've grown up a little) trying and playing with new stuff, studying whatever university courses they feel fulfills their intellectual potential etc, and not having to worry about finding a McDonald's job because their parents have left them with nothing. But if you pay all the workers a little more then their kids will also be able to follow the intellectual subjects they're really interested in instead of studying and learning only to get a job, any job, in order to pay down the future student-loans faster. These people would very rarely be interested in inventing new stuff for their "capitalist" owners or in becoming entrepreneurs (which it has been proven that it's good for capitalism, I mean, there being more entrepreneurs).
The same argument (only much better put into words) was made by J.S. Mill when he wrote about why women should be fully allowed in the workforce on the same level as men. He found it really, really inefficient that about 50% of the human population was taken out of the intellectual pursuits, which for us, as a species, means that we get to have 50% less inventors/great artists/technicians.
Your second paragraph, why would the business owner care about their workers kids ?
Because said capitalist presumably has kids, and he wants his kids to have a bigger talent-pool from where they can choose their future employees so that the company can continue to prosper. But you're right, nowadays "business owners" doesn't mean "capitalist" (or a bunch of capitalists, let's say maxim 3 or 4), it usually means some anonymous pension funds which appoint administrators (i.e. CEOs) to run the business for them. Of course that those CEOs don't have any incentives to look forward in time because their kids' future success doesn't depend on what their present company is doing. Schumpeter decried this phenomenon as early as the 1930s, and predicted that will "help" with the demise of capitalism.
> Your second paragraph, why would the business owner care about their workers kids ?
I hope I answered this in the previous paragraph. In short, the business owners' kids will need to have employees on their own (and good ones at that) and relatively speaking prosperous clients. If you don't care about the kids of today's workers then you're reducing both the numbers of your kids' potential very good employees and prosperous clients.
That means that corporates have leverage over labour (ie, either importing from cheaper countries, or automation, or guest workers, etc).... My hunch is the increase of globalism (since the 90s) caused this. Communism fell, more skilled people available in the market, more open borders, etc... which gives global companies more leverage. It is very easy to spot:
https://cdn.static-economist.com/sites/default/files/imageca...