On Fri, 26 Dec 2014 21:48:17 -0600, Ignoramus22953
wrote:
On 2014-12-26, Ed Huntress wrote:
On Thu, 25 Dec 2014 20:24:55 -0600, Ignoramus11791
wrote:
I find that reasoning to be ridiculous. According to its proponent, the
reason for disappearance of middle class, is that a certain arcane
"federal overtime rule" was not adjusted for inflation.
I'm going to guess you didn't read the whole article, nor the other
articles and the TED talk that Nick Haneur has given.
I read the article, and that was what I was responding to, but did not
listed to the TED talk and I am not planning to listen.
The overtime thing was just a response to what PBS was interviewing
about. Read the rest of the article and you'll have a better picture.
This makes no sense. We live in a capitalist society where wages, for
the most part, are formed in a labor marketplace.
The "labor marketplace" is hugely biased against labor, and has been
throughout history, with a couple of exceptions: the World Wars and a
couple of bubbles, in which labor gained an advantage.
The study of Labor Economics is worth a Master's degree of study --
and often is.
I have not immersed myself into the arcana of it, however all studies
about various "biases", "flaws", and other real shortcomings of human
decision making, only look at short term effects. In the long run,
prices take care of those biases nicely. Same likely applies to those
"biases against labor".
No, they don't. It's an unequal "market," and wages reach an
equilibrium based on that labor/management inequality. The equilibrium
has no necessary or "natural" level; there is a wide range for the
equilibrium to establish, except when it prevents the economy from
growing. I don't remember the details, but IIRC, that has never
happened on the wage upside, but it arguably can happen on the
downside, and has been identified as a source of declining consumption
and resulting recessions in the latter part of the 19th century in the
US and the UK.
You don't need the arcana to see the research that has been done on
this. It's Labor Economics 101.
For example, take China, with labor protection nonexistent. Simply due
to economic development, their wages increased severalfold, simply
because labor became more marginally profitable to employ, and
scarcer.
China is approaching the Lewis Turning Point (look it up -- it's basic
labor economics for rapidly-developing economies). Economists predict
it's about six or eight years away. Some say it's already been
reached. Whether it's been reached or not, China is at a stage where
extremely rapid growth has put great pressure on the supply of
qualified labor, and driven up wages (BTW, they have fairly strong
minimum wages in China, which are enforced in the major cities but not
in the rural areas.)
Labor is LESS marginally profitable to employ in China than at any
time in the past. It's more a matter of employers having to be
satisfied with smaller margins. This is part of the complex of things
that is causing China's growth to slow down.
So your point is generally right, with one exception and one caveat.
The exception is the marginal profitability of labor. It's declining
sharply. The caveat is that it only applies to underdeveloped
countries as they go through a subsistence/capitalist transition and
then reach a labor shortage that drives wages up sharply and hampers
growth because of the labor shortage -- not because of the higher
wages.
Specifically, it applies to countries that fit the Lewis Model, which
traces the transition from a "subsistence" (agricultural) economy to a
"capitalist" economy, in which investment returns flatten out as the
labor supply falls behind the demand.
This is what China is going through now. We reached that point in the
first half of the 20th century. The UK reached it in the mid-19th
century.
BTW, Arthur Lewis's models, for which he won the Nobel Prize, are not
theoretical. They're based on a lengthy analysis of actual economies
throughout modern history, organized with classical economics values
and variables.
If workers bring a certain incremental additional value to employers,
then their wage would reflect that additional value (the extra amount
that the employer would earn from hiring an additional worker).
Not if the workers are bidding each other down. That's the most usual
state in any industrial economy.
There is always two sides to price discovery, labor bidding itself
down, and employers bidding themselves up.
And, as in all price determinations, the equilibrium depends on the
relative negotiating strength of the two sides.
When you're negotiating the price of potatoes, you can walk away and
go looking for turnips instead. g For most labor, at most times,
choices are more limited. At a high stage of industrialization, where
companies are much larger than they were in the first few decades of
the Industrial Revolution, choices become constrained by limitations
on labor mobility. That's when wages sink to a low equilibrium. That's
what happened several times before labor unions gained strength early
in the last century. That's the bias that balances wages below what
they would be in a classical market, with both sides having equal
negotiating strength.
The growth of the American middle class, and our great economic
success, is the result of legislation in favor of labor that attempted
to establish a more realistic balance. Our economic growth over the
past 70 years is largely the result of re-balancing that drove up
consumption. Our economy is 70% domestic consumption.
However much you legislate, if computers and robots and websites
replace that middle class, it will not be employed at previously
customary wages.
Well, that's worth a discussion in itself. And that's a crisis in the
making. I wrote a brief editorial about part of the situation last
month, with a graph that is a little alarming:
http://tinyurl.com/mov7x8a
In addition, when costs of transportation of goods or services are
low, jobs can move to countries with less regulations or lower costs.
That's true. Once a country goes all-in for globalization and
offshoring, they've lost control of the balancing controls on their
labor market. And the result, for the US, is a 30-year decline in the
real wages of the middle class and a struggle to keep unemployment
down to a balancing level.
I can emotionally understand why that billionaire campaigns for $15
minimum wage, but his reasoning does not stand up to scrutiny.
i
The alternative is a race to the bottom.
To believe that the market prices for, say, car oil changes is self
regulating, but that market prices for employees doing oil changing is
not, is kind of crazy and inconsistent.
No, it's observation of the real history of labor markets.
Employees seek higher wages, employment contracts can be terminated at
any time, and employers seek profitable employees. That causes wage
prices to clear.
You have a good understanding of this, so you know that
well-functioning financial markets depend on perfect information, but
there is nothing like perfect information on the part of buyers. So
that market is seriously biased against buyers.
Labor markets depend on perfect worker mobility. But there's isn't
very much of that. You missed the perfect example of that in the
1970s, when the steel industry collapsed and workers couldn't move
because entire towns were suddenly out of work and they couldn't move,
because they couldn't sell their houses, because they were suddenly in
a depressed housing market and they were upside-down on their
mortgages.
Markets for goods and consumer services generally work well. Other
markets sometimes don't work well. Markets "clear" at a levels that
often cause some group to be seriously screwed. Sometimes it's their
lives that wind up being screwed.
If you depend on market forces to regulate labor, you wind up with a
system so fraught with risk that, at the very least, you wind up with
workers who are underemployed because they won't take the excessive
risk to change or move. The upshot is risk-induced abor inefficiency
and suppression of economic vitality and growth. This isn't theory.
It's well-researched fact.
If computers and robots can replace employees, they should not hope
for higher wages.
We'll see what happens. My guess is, like what happened in the 1930s,
the people of the United States are not going to let their lives be
ruined because free-market theorists think they're economic market
objects to be "cleared." It's not a settling thought.
I do not have anything to add to what I said.
You will. You're young enough that you'll see what unfolds. I may not.
--
Ed Huntress