My response to the extended and quite interesting comments on yesterday’s post will be scattered, I am afraid, because I still do not see my way into this subject very clearly. There are two different questions that it would probably be well to distinguish: why is there any distinction at all in the compensation paid to persons doing different tasks in the economy, and why is the pyramid of salaries so steep?
With regard to the first question, I am reminded of the
delightful controversy that I read about some years ago that took place, I
believe, in the contract negotiations of the members of the Berlin
Philharmonic. The first violin section was arguing that because it played so
many more notes than, for example, the tympani player, they should receive more
money. On that theory, catchers should be paid more than left fielders, and
guards, who take part in every play, should be paid more than tight ends.
However, I digress.
The steepness of the pyramid is quite striking, and somewhat
more difficult to make sense of. I have always been struck by the fact that
among the really large employers in the United States economy – employers as
large as Amazon or Walmart – there is one in which the spread of compensation
between the top executives and the ordinary employees is tiny by comparison
with that of all the others. In that one firm, which employs well over 1
million men and women, the top executives of the different branches make only about
five times as much as the ordinary employees, not 50 or 500 or 1000 times as
much, and yet that firm has a splendid record of efficiency in production and
is admired around the world. I am referring, of course, to the United States
military.
Some of the jobs in the American economy – electricians,
welders, carpenters and so forth – require a great deal of skill that cannot be
acquired quickly. But many of the relatively high paid white collar jobs
require no more than the degree of literacy and numeracy that would be acquired
in the course of a good high school education.
Invocations of marginal utility are all but useless in making
sense of these phenomena. In a large corporation, it is virtually impossible to
ascertain the marginal utility of someone in one of the various positions. I
have written about this at length before, and will not repeat what I said there
unless somebody wants to hear it again.
Now I must stop writing and return to the television set to
catch the latest news out of Georgia. These are terrible times, and one must
find one’s pleasures where one can.
“[T]here developed a permanent hierarchy of wage levels so steep that it undermined the unity of the working class and led to the situation which we now observe in advanced capitalist economies … [but] it is unclear to me why the pyramid of wages is as steep as it is and it is especially not clear at all why a liberal arts college degree should serve as a prerequisite for access to jobs at the higher reaches of the pyramid.” (Emphasis added).
ReplyDeleteI have been occupied by this question for some time (40 odd years). The college degree is a prerequisite, but not in the way that one might think.
For some of these jobs, a college degree is not really a “prerequisite”. That is, you were going to get the job anyway. The degrees are gilding on the lily. I have a particular person in mind, the (now) billionaire son of a billionaire who went to work for the family firm. He was going to do that in any event, but he duly went and got a BS (Econ.) from his midwestern home state school, and then an MBA from the Ivy League beforehand.
Another person comes to mind, the son of a mere multimillionaire, who got a BS from his midwestern home state school (Poli. Sci.), and then went to work in D.C. as the (nominal) “chief of staff” of a certain member of the house. I would describe this job as being in charge of the care and feeding of his father’s pet congressman, but I’m a cynic.
Could these two have been appointed to these positions without the degree? Maybe, but that would have been tacky, gauche, it would have given the game away. More importantly, in giving the game away, their positions would have been seriously undermined. The degree is necessary in that it provides a meritocratic figleaf. This is America, not Tajikistan!
I should say that neither of these two guys is stupid. Certainly neither of them are interested in any way in any of the same things as I am; and for that reason I may not find them, at bottom, all that interesting to talk to. But I feel that way about practically everybody.
As a further example, consider George W. Bush. In contrast to the above examples, He’s … well, he’s nobody’s idea of an intellectual. On top of that he fit the classic stereotype of the preppy fuck-up well into his forties. And yet he failed upwards. Could he have done this without his two degrees (Yale, Harvard MBA)? No way! Again, these served as a crucial figleaf, distinguishing the operations of our great Republic from some ridiculous Asiatic Banana-Stan.
These guys were all slotted into position at the very top of the pyramid. What about lower down? Does the same dynamic apply? I suspect it does, but only by way of establishing an operative mythos. It sets the tone. It’s simply the way things are DONE, dear boy. Would you show up at the club in white pants after labor day? No, you’d be a laughing stock!
Let’s also note that there has been, since about 1930 or so, considerable social pressure applied to these social-business frameworks by the professionalization of business administration. Young clever eager beavers who lack the social connections can make up for it by native smarts and Stakhanovite levels of effort.
ReplyDeleteTwo of the explanations for why an employer would prefer to hire a college graduate rather than to a high school graduate, for a job that both could do, are (1) the age difference can be expected to translate into more maturity—21 or 22-year-olds don’t do as many stupid things as 17 or 18-year-olds; and (2) the college graduate has demonstrated an ability to reason and handle more complex problems than a high school graduate.
"In that one firm, which employs well over 1 million men and women, the top executives of the different branches make only about five times as much as the ordinary employees, not 50 or 500 or 1000 times as much."
ReplyDeleteThis is a bug not a feature. It limits the number of highly qualified folks available for those senior positions and encourages. A highly competent O-6 to O-8 in their late 40s - early 50s can retire and make some multiple of their military pay.
"Most people in uniform stay for service rather than money, but there comes a time in every career when the opportunity costs shift. While few would feel sorry for flag officers—they are, after all, the highest paid members of the military—the current system is not sustainable if we want the best officers to remain in uniform."
https://www.govexec.com/defense/2021/03/military-could-soon-face-flag-officer-talent-crisis/172664/
(Also Tuberville's current coup stunt will lead to early retirements of the most qualified. It would be good if this was covered way more.)
Perhaps a better question is why wouldn't the folks who control compensation and have the most political influence not tilt the table?
People who have little experience in the corporate world, for example, academics, often underestimate how difficult certain jobs in the corporate hierarchy are.
ReplyDeleteI recall many years ago how upset my father was when his secretary left her job.
Without any experience of office work, besides one summer job in a bank, I remarked that any girl with a high school education, who knows how to type, can learn the job in a day or two.
My father, not so patiently (he was not a patient person), explained that quite the contrary, it took a woman at least a year to learn the ins and outs of being a secretary in the huge company he worked for. By the way, I refer to a woman in this context because in those days all secretaries were women.
I suspect that the kind of corporate jobs which seem to simple to many of us outside the corporate world require a long learning process, involving complex social skills, interoffice political skills and some technical skills.
Wallerstein,
ReplyDeleteI don't see how this is inconsistent with anything Wolff wrote. You point out that there are many jobs which requires skills that take years of job experience to develop. But Wolff is commenting on jobs requiring years of pre-employment education. If the only required skills that can be learned off the job are literacy and numeracy, then why require a bachelors degree? It's going to take a year on the job to train your dad's secretary whether she takes Wolff's Marx seminar or not, so why require that she's taken the seminar?
T.J.
ReplyDeleteBecause the fact that she's taken and passed Wolff's Marx seminar indicates a certain ability to deal with and process new information which is generally not required in high school.
In addition, most people go away to college while they go to high school while living with their parents. The fact that someone has adapted to dorm life and has been able to live with non-family members for 4 years indicates an ability to adapt to other people's forms of life, etc.
The university for many people is leaving the protective womb and the fact that people have dealt with that situation and not freaked out means something.
First, a quote about human capital from Adam Smith:
ReplyDeleteFourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit.
The difference between education and apprenticeship is the opportunity cost, not to mention tuition fees for education.
Trade workers earn while they learn. The cost of their learning is paid by their employers, which then gets passed along to consumers. In that sense, they don't need to be compensated extra for their human capital because they didn't bear the cost of acquiring it. So you don't need as much inducement to get trade workers as you do for people who have to give up years without pay to get a college degree.
As an aside, the returns to education are higher for women because their opportunity costs are lower, as this Fed article shows (selected quotes):
Why Do Women Outnumber Men in College Enrollment?
When the fall college enrollment numbers came in, we learned that, for every man, there are now almost two women attending college. These numbers indicate the highest recorded gender imbalance favoring women seen in U.S. college enrollment.
Relatively Higher Returns to College Education
Nevertheless, the upward trend in relative female enrollment was there already before the 2017 SAT reform, and it is important to understand the forces behind it. We argue that women face greater financial returns to college entry—this is the most likely explanation for why they outnumber men in college today.
To show that women enjoy greater financial returns to college, we examine the variation in real hourly wages among 30- to 40-year-old full-time workers in 2015 census data. The results from the regression estimates are reported in the table below.
What these numbers reveal is that, indeed, getting more education is an important way to close the gender pay gap. College entry—whether it is to get an AS or a BS—helps women gain access to careers where they have a comparative advantage (e.g., office work). Men on the other hand have better access to lucrative careers that don’t require a college degree (e.g., construction work). This appears to be the most reasonable explanation for why women outnumber men in college.
source: Why Do Women Outnumber Men in College Enrollment?
Off-topic (but apropos): this interview with Richard Wolff is worth a watch/listen (it is also available as a podcast). He's a Marxist, an economist, and he is a real treat to listen to - full of insight and passion, he ranges from Marx to Freud to Aristotle, and many points in between.
ReplyDeletehttps://youtu.be/exGH_9k1ocI?si=_vD41yR3vU2SaTKC
Anonymous,
ReplyDeleteRichard Wolff is a likeable fellow. I watch a lot of his videos.
The problem with Richard Wolff in not only that he doesn't understand macroeconomics, he doesn't understand microeconomics.
In one of his videos with the beautiful Abby Martin, he says that if you hire a worker for $20 an hour and sell the output they produce for more than that, then the difference between the sale price and the wage you paid the worker is profit.
Actually, the difference is not profit but rather the contribution margin, which goes towards offsetting fixed costs. Only when all fixed costs have been covered does the employer earn a profit. That's why the income statement is also called a profit and loss statement.
You could sell a worker's output for more than what you pay them in wages and still lose money.
More on Richard Wolff but first a quote from Dietrich Vollrath:
ReplyDeleteBack to France. There are really two different slowdowns in the figure. There is the 1970 to 1980 slowdown, and then there is the 2000 to 2010 slowdown. As in Fully Grown, I’m only concerned with the latter slowdown. The earlier slowdown is basically a function of France converging back to its balanced growth path after World War II. This earlier slowdown in growth is, to me, almost entirely explicable in terms of simple Solow model dynamics. This is “catch-up” growth, equivalent to running a little faster than the pack for a while because you had to stop and tie your shoe. As you catch up with your group you naturally slow down to their steady pace.
In one of his videos, Richard Wolff describes the rapid growth of the Soviet Union in the early 20th century as proof of the merits of Marxism. I checked the data and the Soviet Union did grow rapidly during that period.
The problem is that Wolff confuses growth with Solow catch-up growth, similar to China's recent growth and the growth mentioned in the above quote.
No, the Soviet Union's rapid growth was actually copying the capitalist growth of the Western economies, so it proves nothing about a Marxist command economy. As expected, as soon as the Soviet Union caught up, it stagnated, in the same way that China's growth is slowing.
Era of Stagnation
The "Era of Stagnation" (Russian: Пери́од засто́я, romanized: Períod zastóya, or Эпо́ха засто́я Épokha zastóya) is a term coined by Mikhail Gorbachev in order to describe the negative way in which he viewed the economic, political, and social policies of the Soviet Union that began during the rule of Leonid Brezhnev (1964–1982) and continued under Yuri Andropov (1982–1984) and Konstantin Chernenko (1984–1985).[1][2] It is sometimes called the "Brezhnevian Stagnation" in English.
The American Tractor Comes to Soviet Agriculture: The Transfer of a Technology
ReplyDeleteSELDOM HAS A MAJOR agricultural technology been adopted so quickly and on such a vast scale as was the tractor in Soviet Russia. In the course of ten years the tractor changed from a curiosity to a standard unit of power; in 1924 there were only about 1,000 tractors in operation, by 1934 the number had increased to over 200,000. This growth was all the more remarkable because it took place in a rural economy which had, from a technological point of view, changed little from the Middle Ages. The increase in tractor numbers paralleled an even more striking change in social and economic structure-the collectivization of agriculture. It appears that the introduction of the tractor hastened the collectivization process; in fact, it became intertwined with profound changes in Soviet governmental organization. This technology, however, did not spring from the Russian soil; it came almost entirely from the United States. Through the mid-thirties, most of the tractors in the Soviet Union were of American manufac
That's as much of the quote I could capture, proving once again the growth rate of the Soviet economy came from the US economy.
Ahmed, interesting stuff. I am not competent to assess Wolff's understanding of macro or microeconomics, though I presume he has formidable competence in both (given his credentials and reputation). Does it make sense to subject his quite informal remarks in video interviews to rigorous scrutiny, as if they were made in journal articles? I don't know. I don't have a dog in the fight you have with him. Just wanted to point folks to a very engaging interview with an economist who is also a Marxist.
ReplyDelete'Soviet Marxism' and the command economy didn't bear much relationship to anything envisaged by Marx, so the performance of the USSR's economy shouldn't be cited as showing either the merits or demerits of Marxism. It's too bad that a self-identified Marxist economist such as Richard Wolff would cite the early growth of the USSR as proof of the merits of Marxism, since although the USSR claimed to be Marxist, it's far from clear that Marx would have recognized or endorsed it as such, even in its early years.
ReplyDeleteIt's false btw to think there are only two alternatives: the USSR-style command economy or capitalism. Other alternatives include forms of market socialism (of which Yugoslavia at one time had a version, though it shouldn't nec. be identified with that particular example). There's also, e.g., Robin Hahnel's and Michael Albert's "participatory economics" (though I haven't read v. much of their work). Hahnel has a piece in the current (Summer 2023) issue of New Politics.
P.s. There are quite a few self-identified Marxist economists, presumably with various disagreements among themselves.
P.p.s. I don't know the more recent literature at all well, but there are authors from decades ago likely still worth reading (not nec. Marxists), including Alec Nove, Robert Heilbroner (Marxism: For and Against), and -- although I wouldn't nec. endorse everything he says about Marx -- Michael Harrington. And since this is R.P. Wolff's blog, it wd be impolite not to mention his books as well.
I encourage everyone to watch this short 8-minute video about the growth of the Soviet Economy. The first half of the video is Richard Wolff laying out the facts of that growth, which are true, the second half I believe is Thomas Sowell refuting the argument by laying out the true cause of that growth.
ReplyDeleteRichard Wolff Is Lying About The Growth Of The Soviet Economy - Thomas SowellTV
What Richard Wolff says in the approx. first two minutes of that video (which is all I watched), before he starts talking about the Soviet economy, is very sensible.
ReplyDeleteAs for the causes of the growth of the Soviet economy, does it matter much to anyone except some economists and economic historians? It's not like there are lots of socialists and Marxists proposing to emulate the Soviet-style command economy. I don't know why Richard Wolff would put emphasis on this.
Moreover, GDP growth is obvs not the only thing that matters. How an economy deals w poverty, inequality, environmental issues, people's basic and non-basic needs etc. also matters a lot. (Pakistan in the 1960s had sterling GNP growth while poverty stagnated or deepened and unemployment in the industrial sector increased.)
I think one's time prob would be better spent watching e.g. Amartya Sen (who won the Nobel Prize in econ btw) than Richard Wolff or Thomas Sowell.
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ReplyDeleteThis comment has been removed by the author.
ReplyDeleteWhat about the striking inequalities in pay for people that do the same thing? I suspect that persists because of political support between government and capital. Which makes for a very sad and also amusing article Vice published about Harvard University's Health Services offering assistance with securing SNAP benefits to graduate students who who teach, research, grade papers, and support the program. https://www.vice.com/en/article/93kwaa/harvard-tells-grad-students-to-get-food-stamps-to-supplement-the-unlivable-wages-it-pays-them
ReplyDeleteRidiculousIcculus,
ReplyDeleteEconomist Tyler Cowen wrote an article about this:
How an economist thinks
I saw this on Twitter:
"Hard Times for Adjunct Professors: 25% of part-time university faculty nationally rely on public assistance programs."
My immediate reaction was “Given the crowding in the sector, and that they presumably earn non-pecuniary returns from the enjoyment of teaching, shouldn’t we be taxing them at a higher rate?”
source: How an economist thinks
This comment has been removed by the author.
ReplyDelete