Most of the comments on my blog post yesterday concerned explanations for the exorbitant salaries at the top of the pyramid. I find those relatively easier to understand (not, needless to say, to justify), especially as they have soared in the last half-century while the basic structure of American capitalism has not seriously altered. What puzzles me is the intractability of the pyramidal structure of the lower reaches of the pyramid. There is a good deal of data available on the web about the distribution of household income. This is a somewhat indirect measure of of wages and salaries, inasmuch as household income depends on the total brought in by all of the wage earners in the household. Nevertheless, the figures are useful in portraying the basic structure of income in the United States. If we list the more than 100 million households in ascending order from the household with the least income in a year to the household with the most income in that year, and then divide the list into tenths, marking the maximum income in each tenth, we get a pretty good picture of the pyramid. Here are the figures from 2022.
Maximum income of poorest tenth: $15,600
Maximum income of second tenth: $28,002
Maximum income of third tenth: $40,501
Maximum income of fourth tenth: $54,945
Maximum income of fifth tenth: $70,181
Maximum income of sixth tenth: $89,673
Maximum income of seventh tenth: $113,191
Maximum income of eighth tenth: $149,212
Maximum income of ninth tenth: $212,110
To put some meat on these bones, consider a household in
which the wage earners are a North Carolina high school teacher in one of the
larger cities of the state and his wife, a police officer, both of them having
held their jobs for 15 years or so. Their combined income will put
them somewhere in the middle of the eighth tenth of households in the United
States. That is to say, three quarters of all households in the United States
will have less annual income than they do. A single mother with two children
working at a full time job that pays $15 an hour will be the head of a
household with a larger income than one-fifth of all households in the United
States.
By the way, the median household income in 1980, adjusted
for inflation, is equivalent to an amount of money that would put that
household in the 56th percentile in 2023. In short, in the past 43
years, the median household has actually lost a bit of ground and is somewhat
poorer now than it was then. Although the economy as a whole has grown in real
terms rather dramatically, all of that growth has gone to the upper 40% of the
society.
The dramatic accumulation of wealth in the hands of the
rich, as chronicled by Thomas Piketty, does not surprise me. Say what you will
about Marx, he does explain that. But why is the compensation of working people
so intractably unequal?
ReplyDeleteI think a good part of the explanation are the changes in the nature of work. In the decades following WWII, much of the blue collar work was in large manufacturing plants. That’s no longer the case. There are still large corporations employing thousands of people, but they no longer are just GM, US Steel etc. Increasingly, they are MacDonalds, Starbucks and their ilk. The former were easier to organize, not only because of more favorable labor laws then, but because of the size of the units—a steel mill vs. a coffee shop. A union busting company like Starbuck’s can simply close a single shop if it tries to unionize, as it’s doing now. GM and US Steel don’t have that flexibility. Strikes cause those companies a lot of money, and they can’t simply shut the door and move elsewhere.
Related to this is technology. It takes far fewer labor hours to make a ton steel today than it did 50 years ago. And it’s not only the good jobs that are hit by technology--store clerks, for example, are losing jobs to self-checkout. All of this leads to an increased supply of low-skilled workers and a decrease in jobs for them.
David,
ReplyDeleteThis doesn't seem to explain the rigid, pyramidal hierarchy of wages. These seem like reasons to expect that all wages would go down, that the wage structure would flatten out because everyone makes less. We're all at the bottom of the pyramid now.
But that's not what we see. The store manager makes more than the baristas. The regional manager makes more than the store manager. Even though technology reduces the need for labor in all the jobs, some jobs still make much more than others.
So why haven't the forces you're citing flattened out all wages down to the bottom of the wage structure? Why is there still this stubborn hierarchy of workers' wages?
In case you aren't altogether opposed to game theory, there is Grading in Games of Status: Marking Exams and Setting Wages by Pradeep Dubey and John Geanakoplos. I heard Prof Dubey lecture on this at a seminar at the CUNY Graduate School almost two decades ago. The abstract suggests a mechanism for the non-linear disparity in wages, assuming that workers can either shirk or work and the ratio of workers who shirk at each level of ability to the number of workers at that level is less than and bounded away from 1. From the abstract.
ReplyDeleteWhen student abilities are disparate, the optimal grading scheme is always coarse. Furthermore, it awards fewer A's than there are alpha-quality students, creating small elites. When students are homogeneous, we characterize optimal grading schemes in terms of the stochastic dominance between student performances (when they shirk or work) on subintervals of scores, showing again why coarse grading may be advantageous. In both the disparate case and the homogeneous case, we prove that absolute grading is better than grading on a curve, provided student scores are independent. We next bring games of money and status to bear on the optimal wage schedule: workers can be motivated not merely by the purchasing power of wages, but also by the status higher wages confer. How should the employer combine both incentive devices to generate an optimal pay schedule? When workers' abilities are disparate, the optimal wage schedule creates different grades than we found with status incentives alone. The very top type should be motivated solely by money, with enormous salaries going to a tiny elite. Furthermore, if the population of workers diminishes as we go up the ability ladder and their disutility for work does not fall as fast, then the optimal wage schedule exhibits increasing wage differentials, despite the linearity in production.
A non-linear optimal wage scheme is far from the entire story. Is there room for a Georgist in the comments section of this blog? Marx called Henry George's land value tax (LVT) proposal, "the last ditch of capitalism." Recently, Martin Wolf of the Financial Times offered this defense of the LVT in The case for a land value tax is overwhelming.
ReplyDeleteI don't believe this is entirely rational.
ReplyDeleteI just walked by a public nursery school in my neighbor and to my surprise, the nursery school workers were not only on strike, but also were occupying the building.
Since it's public, they will not be fired (the mayor is at least theoretically leftwing) as they would be in a private nursery school.
Nursery school workers are all or almost all female and professions staffed by females are almost always paid less. In spite of all the bullshit discourses about how important pre-school education is, they pay the workers there very low wages.
What society pays has something to do with its real values, not its ostensible bullshit values. For example, a woman can earn a lot more money as a sex worker than educating pre-school children.
So too the people who staff old age homes are poorly paid, because in reality society doesn't give a shit about the old. Being old myself, I can see that in how people treat me every day, as a nuisance who walks too slowly when crossing the street, who fumbles as he counts his change and thus slows down the "productive" process.
SW
ReplyDeleteI believe the majority of many people's nefarious & culpable treatment of the elderly will not end until benevolence & Confucius' ethics are taught to children at a very young age. And I believe it would take several generations of this type of education to kick in for any civilian to see any substantial results.
Since Wolf's article is behind a paywall, here is a summary.
ReplyDeleteMartin Wolf of the Financial Times argues in favor of taxing land value, a concept historically endorsed by classical economists like Henry George, Adam Smith, David Ricardo, James Mill, and John Stuart Mill. Emphasizing the pressing need for this taxation in the face of economic challenges such as low growth and high inequality, Wolf refers to a paper by the Centre for Economic Policy Research that provides solid arguments for land taxation today--also see this summary.
Wolf highlights that land's share in economies' nonfinancial assets is between 40% and 60%, with the US exceeding 50%, offering a large base for a non-distortionary tax. Moreover, Wolf points out that the credit system mainly finances land ownership, turning land rents into interest on unproductive debt, which can result in speculative bubbles. However, this tax has been politically difficult to implement due to opposition from powerful landowners. Despite these political obstacles and potential transitional problems, Wolf urges policymakers to pursue this avenue, asserting that land's immobility makes it an optimal target for taxation. He maintains that this strategy could benefit the country and represents a morally just and economically sensible approach.
@T.J. (August 12, 2023 at 12:12?PM)
ReplyDeleteRelevant to your comment:
Modern Industry has converted the little workshop of the patriarchal master into the great factory of the industrial capitalist. Masses of labourers, crowded into the factory, are organised like soldiers. As privates of the industrial army they are placed under the command of a perfect hierarchy of officers and sergeants. Not only are they slaves of the bourgeois class, and of the bourgeois State; they are daily and hourly enslaved by the machine, by the overlooker, and, above all, by the individual bourgeois manufacturer himself. The more openly this despotism proclaims gain to be its end and aim, the more petty, the more hateful and the more embittering it is.
This is a fairly well-known passage of The Communist Manifesto. The added emphasis is mine.
The operation of modern large enterprises requires a hierarchy of overlookers (nowadays we call them "managers"), much like the military requires a hierarchy of commissioned and non-commissioned officers, each with its own perks.
See my comment in the "Numbers" thread (I meant to put it in this thread) re the growth of managerial vs non-managerial compensation in recent decades.
ReplyDelete