Real wages stagnating...the cause or a symptom of the recession?

[RadioRaheem84]

Two schools: underconsumptionist theory which says that the capitalist class answer to stagflation was neoliberalism. Wages were rising and reached their peak in the 70s. Upper class said no more as its becoming less profitable to be an owner than a worker who is making an inflated salary in their eyes. Prices were soaring, economy slowed.

The other school propped by Andrew Kliman and to an extent David Harvey suggests that loss of wage power is a result of a slow growth economy.

Which one is more sound? The latter seems to quell a lot of the class warfare talk about the 1% being in deliberate class war trying to tame labor.

[cyu]

Any time a capitalist claims the "right" to decide an employee's pay, rather than the other way around, I would call deliberate oppression.

[RadioRaheem84]

So in your opinion MR is correct that this is a deliberate class warfare attempt to discipline labor? Rather than stagnant wages being a symptom of a stagnant economy like Kilman would suggest?

[cyu]

Fox News wouldn't exist if it wasn't deliberate. Nor would the Cato Institute or the American Enterprise Institute.

Excerpt from http://www.revleft.com/vb/valve-corporation-no-t170623/index4.html

not all company owners will become corporate sociopaths, but this doesn’t matter. If the owner is not a sociopath (making him either a clueless or a loser in the MacLeod’s trichotomy), then eventually a sociopath will gain control. It might happen through a buy-out, or through manipulation – but it is destined to eventually happen. The Sociopath is like an athlete on performance enhancing drugs, determined to win at any cost – and willing to do whatever it takes. The Sociopath is willing to use manipulation and undermining techniques to gain control, and is persistent with his intents.

[Vladimir Innit Lenin]

There's no 100% 'right' answer. The capitalists need low inflation and some minimum level of unemployment, combined with wages that are low relative to the quantity of goods sold and the price at which they are sold.

Lower wages can in part be seen as a response to low and even negative economic growth around the world in the 1970s, in the sense that the very poorest haven't, in general, seen their wages keep up with the economic growth that we saw in the 20-30 years to 2008. However, there are probably two points that fatally undermine the lower wages argument:

1) there was already wage restraint embedded in the 'post-war consensus'. The Phillips Curve predicted a short AND long run negative correlation between employment and inflation (i.e., policy makers can choose some level of unemployment or inflation, in exchange for a given level of the other). Thus, in order to keep inflation relatively low through the 1950s and 1960s, wage restraint was employed and largely respected across the economy. Of course, the long-run root of the stagflation and recessions of the 70s and 80s (with the 'trigger' being the oil shocks of the 70s) is that the Phillips Run has since been found to be only a short-run phenomenon - in the long run it doesn't hold true that you can offset higher inflation (unemployment) by increasing unemployment (inflation);

2) In the 20-30 years to 2008, the vast majority of people in the developed world saw their real wages increase. No doubt low inflation helped, but in general, the top 80% of so saw continued and not insignificant rises in their real wage. Of course, we can also note that the rich got hugely richer, whilst the wages of the poorer sectors of society - though as mentioned increasing in real terms - didn't increase at quite such a pace.

[cyu]

One would expect as technology continues to improve (which is generally to be expected, unless there's some sort of Luddite backlash), that "real wages" would improve. However, as long as capitalism exists, there will always be oppression in the sense that the wealthy will always have more power than the poor.

Capitalists claim that "wealth isn't a zero sum game". However, political power is. The greater the gap between rich and poor, the more political power that will be concentrated in the hands of a tiny minority.

[Vladimir Innit Lenin]

One would expect as technology continues to improve (which is generally to be expected, unless there's some sort of Luddite backlash), that "real wages" would improve.

Really? I'm not totally sure. Perhaps real wages per worker may improve (i.e. real wages divided by number of workers active in labour force) as employment is reduced by technological innovation, but the thing about technology is that it generally actually reduces the skill requirements of labour, and thus the potential for real wage improvements. Check out Braverman (1974) for the de-skilling hypothesis, it is somewhat compelling (if not flawed in that it treats de-skilling as a general case when it is probably not - however, the point on the link between skill and wage is sound IMO).



Capitalists claim that "wealth isn't a zero sum game". However, political power is. The greater the gap between rich and poor, the more political power that will be concentrated in the hands of a tiny minority.

This is the key point. It doesn't really matter if wealth isn't a zero sum game, under capitalism. In the 20-30 years to 2008, for example, we saw the income of pretty much all of the top ~80% in the UK rise, and the wealth of all home-'owners' rise significantly in the 5-10 years to 2008 as the housing price boom became a self-fulfilling bubble, yet political power became entrenched in the hands of a minority and, combined with changes to party funding, laws on trades unions and legal curbs on the ability to strike in solidarity, establish secondary pickets and wildcat walkouts, and the general erosion of pay and conditions in the public sector, political power did as you note become entrenched in the hands of an ever-decreasing minority and democracy was further eroded. Shows that we cannot treat capitalism as merely 'the economy', but as a political system, and therefore our solutions need to be not merely economic (or 'economistic'), but acutely political, too.

[Klaatu]

The greater the gap between rich and poor, the more political power that will be concentrated in the hands of a tiny minority.

And that is not all. The greater the gap between rich and poor, the poorer a country (as a whole) becomes. The smaller the rich/poor gap, the wealthier a country (as a whole) becomes. This is because buying power (the economic driver) is maximized when the greatest number of people buy goods and services. The rich only eat so much, they only use so much fuel, etc, not much more than anyone else. So what do they do with their 'excess' money?

If enormous wealth is concentrated in a few hands, a sort of 'wealth bubble' forms... these rich people will pay huge sums of money just for a mere restaurant meal, and untold sums for art, real estate, etc. Prices get bloated. This money circulates through the wealth bubble, not ever in the hands of the common man. The '99-percenters' lose. This needs to change.

[Vladimir Innit Lenin]

[QUOTE=Klaatu;2632126]And that is not all. The greater the gap between rich and poor, the poorer a country (as a whole) becomes. The smaller the rich/poor gap, the wealthier a country (as a whole) becomes. This is because buying power (the economic driver) is maximized when the greatest number of people buy goods and services. The rich only eat so much, they only use so much fuel, etc, not much more than anyone else. So what do they do with their 'excess' money?

This is one theory. I would support it - in theory - but there are also many outliers. There is another school of thought that says a country gets more unequal during industrialisation, and then becomes more equal. For example, the UK. I'm not sure anybody (though be my guest to enlighten me on this!) has conclusively answered this question, yet.

[Devrim]

2) In the 20-30 years to 2008, the vast majority of people in the developed world saw their real wages increase. No doubt low inflation helped, but in general, the top 80% of so saw continued and not insignificant rises in their real wage. Of course, we can also note that the rich got hugely richer, whilst the wages of the poorer sectors of society - though as mentioned increasing in real terms - didn't increase at quite such a pace.

Is this true? I would like to see some figures that back it up if possible.

Devrim

[Vladimir Innit Lenin]

Is this true? I would like to see some figures that back it up if possible.

Devrim

A 1st year lecturer I had calculated using data from the Family Expenditure Survey and Family Resources Survey for various years and got the following:

from 1996/7-2008, the real income growth of all quintiles of the population increased by at least 1.5%, with the second-from-bottom quintile and richest quintile both increasing more at nearly 2%.

From 1979-2006/7, the real income growth of all quintiles of the population increased, but with a marked inequality: the richest quintile increased by around 2.5%, the second quintile by a little under 2%, third quintile by around 1.5%, fourth quintile by a little over 1% and the bottom 20% increased by less than 1%.

The above apparently do not take account of housing costs.

He then used data of males in Britain for the period 1979-1998 who were in at least 'half'-employment, and found that the top 90% saw a real wage increase from just over 10% per year in 1979 to around 17% by 1998, whilst the bottom 10% saw their real wage increase stay constant at 4% for the entire period.


Quite interesting.

[Vladimir Innit Lenin]

It would be interesting to see comparative data for post-2008.

[Devrim]

A 1st year lecturer I had calculated using data...

It contradicts everything I have ever heard or read on the subject. Most data that I have seen suggests that real wages have been either stagnant or in decline since the oil crisis in 1973.

A (very) brief hunt on the internet gave me this:

http://upload.wikimedia.org/wikipedia/commons/b/b1/US_Real_Wages_1964-2004.gif
Yes, I know it is for the US, but every UK reference to real wages was to those recent stats saying it has dropped since 2008. I don't think there can be that much difference.

I am not sure where your teacher is going wrong, but missing off housing costs is a large enough proportion of most people's wages as to make any figures meaningless.

Devrim

[Vladimir Innit Lenin]

Do you have any references to real UK wages? Or real UK income, too?

I don't think it is too far of a stretch to imagine that during a period (the 30 odd years to 2008) of increasing government expenditure and capital accumulation and investment, real wages will also increase in real terms for workers, too. The story of falling wages might hold for nominal wages, but when factoring in the stagflation of the 70s and the relative stability of prices (in the UK, for example) in the past couple of decades, a long-run increase in real wages is not too hard to imagine.

It's probably not a huge detail, anyway, since any real income growth would be due to inflated housing prices for most people in the bottom 50%, and any real wage increases would be set off by higher target unemployment from the 1980s, and by the even higher unemployment and other negative social effects of the current downturn.

[Devrim]

Do you have any references to real UK wages? Or real UK income, too?

No, I got that from a very quick look. If you want to look that sort of thing up, I am sure you can do it better than I can.

In general though things that I remember reading on this subject all suggest an stagnation, or a decline since the early seventies. It was the fact that you seemed to be saying exactly the opposite to that that surprised me.

Devrim

[Klaatu]

This is one theory. I would support it - in theory - but there are also many outliers. There is another school of thought that says a country gets more unequal during industrialisation, and then becomes more equal. For example, the UK. I'm not sure anybody (though be my guest to enlighten me on this!) has conclusively answered this question, yet.

I do not mean to imply that my thesis is the only answer, as the situation is a bit more complex. For example, workers in lower-wage countries compete with wages in high-wage countries (the industrialists love this) Also the imbalance of trade between countries. Also the rising price of natural resources (mostly oil) cause upward inflationary pressures, which in turn, make buying power diminish (wage relative to price) If the government prints more money (to accommodate rising prices), the prices rise even more so. In converse, if the government does not print enough money, there will be increasing unemployment and falling wages. This actually may be one of the most important reasons of all.

[RadioRaheem84]

This is the discussion I've been meaning to have for quite some time. I want to know if the underconsumptionalist taught by the MR school and some left Keynesians is true and on point, or if the other half of Harvey and Andrew Kliman is true that we actually experienced low wage growth and that it has more to do with political inequality.

I could see how the point could be made that wages have increased slightly for working people in say Podunk, Iowa where the rent is very low, yet wages still account for COL. Here I could see that little rise The Boss is talking about. Elsewhere around the country I think that it gets trickier and I could see the other side of the argument that wages have literally not risen and remain stagnant vs the COL.

Nominal wages have risen but real wages have not. Were there not studies indicating that adjusted for inflation the real minimum wage should be twice as much as it is now? Or that someone making minimum in 1968 was making more and their dollar stretched more than someone making minimum today?

This topic is so confusing with all the different data. But the one that makes me nervous is that the left in this country from progressives to socialists to even left-liberals have built their platform on defeating the right wing through this underconsumptionalist argument.

The Kliman argument seems like fodder for the right wing if you don't analyze the data to include that the issue is political concentration and unequal gains in the growth of the last 30 years.

[cyu]

The cost of oppression

http://thinkprogress.org/wp-content/uploads/2011/03/unionincome.jpg

http://static3.businessinsider.com/image/4fd2455c6bb3f7027e000001/income-union-membership.png

[Workers-Control-Over-Prod]

Two schools: underconsumptionist theory which says that the capitalist class answer to stagflation was neoliberalism. Wages were rising and reached their peak in the 70s. Upper class said no more as its becoming less profitable to be an owner than a worker who is making an inflated salary in their eyes. Prices were soaring, economy slowed.

The other school propped by Andrew Kliman and to an extent David Harvey suggests that loss of wage power is a result of a slow growth economy.


This is not a big mystery. This a rational result of a contradictory system.

Capitalists are always pressured to keep up profitability by competition. They can cut a lot of things besides wages to increase profitability (like their own incomes and unnecessary expenses). But, seeing as the cut throat world of the market society threatens the survival of all and fosters a culture of self-interest, Capitalists look to counter the Tendency of Falling Rates of Profit by attacking Labor.

If Labor is organized while the falling rates of return are squeezing everything on the ship, the Capitalists will seek increasingly to utilize their means to wage a public and political campaign against organized Labor. The pressures on Capital to regain profitability will continue and continue until either there is a success in the public and political campaign against Unions, a political rise of the strike-breaker movement, Fascism, or inter-Imperialist War.

A more underhanded campaign of the Bourgeoisie against the activity of the working class has been underway since decades through its totalitarian media, praising luxury, wealth, fame etc., effecting a moral blow on wage dependent individuals and their conditions of poverty. Why struggle and fight for better conditions and dignity when you've been made to feel your whole life that you don't deserve it, have never been smart enough, strong enough to fit in with the "popular" ones?

Crisis is always a crisis of demand. If we as 'advanced workers' become successful in building popular Party mediums and institutions that resonate enough with our class - and spur a socialist union drive - a fight for a "National minimum wage law" (Good Slogan methinks), would fundamentally end in a crisis of political sorts mentioned above. Why? Because of the End of Capitalist Production.

[Prof. Oblivion]

It's disingenuous to compare union membership to share of income because this isn't a zero sum game. Rather, you should compare union membership to real median income in historically unionized industries that have been deunionized for the effects of union breakup on income.

[Flying Purple People Eater]

It's disingenuous to compare union membership to share of income because this isn't a zero sum game. Rather, you should compare union membership to real median income in historically unionized industries that have been deunionized for the effects of union breakup on income.

What's a zero-sum game, if you don't mind me asking?

[Prof. Oblivion]

What's a zero-sum game, if you don't mind me asking?

It basically means that, because the rich get richer, doesn't necessarily imply that the poor get poorer.

[cyu]

because this isn't a zero sum game.

Again from http://www.revleft.com/vb/showpost.php?p=2631844&postcount=6

Capitalists claim that "wealth isn't a zero sum game". However, political power is. The greater the gap between rich and poor, the more political power that will be concentrated in the hands of a tiny minority.

From http://www.revleft.com/vb/showpost.php?p=2632069&postcount=7

It doesn't really matter if wealth isn't a zero sum game. political power did become entrenched in the hands of an ever-decreasing minority and democracy was further eroded. Shows that we cannot treat capitalism as merely 'the economy', but as a political system, and therefore our solutions need to be not merely economic (or 'economistic'), but acutely political, too.

From http://everything2.com/title/Zero-sum+game

the more parts of the pie allocated to serving a smaller percentage of the population, the less that will be available for everybody else. However, it is both a fallacy to say that society can only be improved by improving the pie's distribution, and a fallacy to say that society should only be improved by increasing the size of the pie.

A house slave may be materially better off than a field slave, but she is still a slave.

[Klaatu]

It basically means that, because the rich get richer, doesn't necessarily imply that the poor get poorer.

I'm sorry but doesn't 'zero-sum-game' mean just the opposite of what you have stated?

http://www.thefreedictionary.com/Zero+sum+game
"zero-sum game"
A game in which the sum of the winnings by all the players is zero.
In a zero-sum game, a gain by one player must be matched by a loss by another player.

[Prof. Oblivion]

Lol yeah you're right, I explained why it isn't a zero sum game, not what one is. Thanks for the clarification.

[rezzza]

It's disingenuous to compare union membership to share of income because this isn't a zero sum game. Rather, you should compare union membership to real median income in historically unionized industries that have been deunionized for the effects of union breakup on income.

Real median household income per person has been on the rise:

http://3.bp.blogspot.com/_otfwl2zc6Qc/SLWCRVSqwHI/AAAAAAAAFgs/aEXmkxBOraU/s1600/income1.bmp

If I might just correct everyone here: some of you are using statistics that show median income per person whilst others are showing median income per household. You cannot compare the two as the period of time influences household sizes. Households were typically larger in the 70s than today.

[RadioRaheem84]

So damn which is it? Did real wages stagnate or rise enough to not make a difference considering the top 1% rise in wages was way higher?

[rezzza]

So damn which is it? Did real wages stagnate or rise enough to not make a difference considering the top 1% rise in wages was way higher?

Wage (narrowly) beat inflation for the average person

BUT

Wages rose astronomically to the top ~1% of people and, more importantly, the top 1%'s wealth share increased faster than proletariat wage increases.

The reason this figures are hard to compare, and why some people have shown different statistics in this thread is:

1) Some source compare household income
2) Some compare person income
3) Some compare wealth, not income
4) Some are median, mode, mean etc. Different averaging systems.

[RadioRaheem84]

Neither one of the four is the proper indicator? It can be measured by all four? Yet, can there be a consensus reached by all four stats? Maybe real wages did stagnate, rising a little later, but never as fast paced at the top 1%?

[rezzza]

Neither one of the four is the proper indicator? It can be measured by all four? Yet, can there be a consensus reached by all four stats? Maybe real wages did stagnate, rising a little later, but never as fast paced at the top 1%?

There's no doubt no matter what statistic you use, real wages for the proletariat are barely rising, and most wealth gains are going to the 1%. It's just confusing sometimes because it's difficult to combine indicators

[cyu]

From http://www.revleft.com/vb/aggregate-derivative-debt-t179288/index.html

The greater the percentage of it that you control, when compared to how much the "noobs" in the real world control, the more power you have over them. You can basically hire large percentages of the general population to do whatever you want.

The catch is that if you actually spent a large percentage of your money, what you would get is economic disaster. The reason is that your massive amount of economic power would allow you to convince people to stop growing food, stop producing heat, and do whatever crazy scheme you have in mind, whether building mega-mega-yachts or a tower to the moon. With all the food and heat that is no longer being produced, you may just end up with mass starvation and death - and as a result, possibly civil unrest and possible revolution.

So the key thing for the mega-wealthy is *not* to spend all their insane amounts of money, since that could bring about their own downfall. Instead, they spend just enough to satisfy whatever ego projects they have, then just do nothing, except when they sense they need to put their jackboots down on the necks of any possible revolutionaries.

[rezzza]

If I can add to cyu

The crises of capitalism are directly linked to investment often. For instance, malinvestment of capital caused by an expansion of credit without a corresponding expansion of real savings can cause these cyclical fluctuations.

OR

Negative real supply shocks to industries can cause cyclical fluctuations.

The 2008 crisis was a classic example of malinvestment + expansion of credit with real savings falling.

Marx wrote in the 19th century about internal contradictions of capitalism. Real wages stagnating is just one of many symptoms of Marx's accurate predictions

[RadioRaheem84]

Woah, what happened? One minute Rezza was contributing the next he's restritcted? What on Earth could he have said that fast?

[Vladimir Innit Lenin]

Woah, what happened? One minute Rezza was contributing the next he's restritcted? What on Earth could he have said that fast?

http://www.revleft.com/vb/showpost.php?p=2633792&postcount=205

Indeed, his above post reeks of Austrian school economics - believing that bad investments cause crashes is akin to supporting the freedom of the market, i.e. 'if only there weren't bad investments, and if only the losers weren't bailed out, the markets would function properly' sort of bullshit.