Wage Stagnation and Increased Purchase Power

I consider myself an armchair economist so what I am about to say might be missing something but I will summarize what I understand to be two sides to an issue.

We know that wages or income have been largely stagnant for most Americans since the mid-1970s. That is, when we take the incomes of Americans 40 years ago and adjust it for inflation, there has not been any improvement. There are a number of things to account for in this statistic and while I can't go into the reasons here, I will say that generally I believe it is true; despite an increase in productivity and increases in GDP since 1975, the average worker is not bringing home more money today than 40 years ago. (I say 'he' because it appears that the glass ceiling notwithstanding, women's income has risen on average since then. But of course the gender pay gap is still quite common and unfairness in pay between the sexes has not been adequately dealt with.)

Shift of Allegiance from State to Corporation

I have written about the corporate takeover of our lives but ought to elaborate here. For more information, see the book with the B-Movie title, "When Corporations Rule the World" by David Korten.

We owe support and allegiance less and less to our government and more and more to corporations. Most Americans today know much more about consumption than citizenship.

Among other things is our attitude toward the central collection of personal information. Many of us resist vehemently a national database run by the government of information such as our names, addresses, habits, political affiliations, employers, income, debts, preferences for books and movies, etc. It reminds us of George Orwell's novel, "1984."

But while we resist the collection and maintenance of a file or dossier on our personal lives by government for fear of a dictatorial state, we actively participate in this data collection when we create online identities. In other words, we don't seem to care that Amazon.com collects this information or that EquiFax does. At least, it doesn't stop us from buying products online or participating in the system that allows this data to be accumulated and maintained.

I read a book recently (Life, Inc.) which had a variation on the Toynbee quote that I posted earlier (http://historicalaccident.blogspot.com/2008/09/title-explanation.html) . This one went something like this:

in the past 500 years, since the inception of state-chartered corporations, people have gone from subjects to citizens, from citizens to workers and most recently, from workers to consumers.

In the 1940s and 50s, the United States experienced a wave of paranoia due to anti-communist sentiments in Washington. A U.S. Senator held hearings recklessly accusing public figures of being communist sympathizers and it ruined several careers. It was common in those days to call a communist an enemy of the state.

But today that label would have to be revised. Given that the U.S. Congress and the White House of either party feels that it is their job to keep America employed, the stock market rising and corporations earning a profit, they would likely consider any threat to those efforts anti-American. But today we have a growing simplicity movement which advocates consuming less among other things. And policy makers in Washington, although they may not admit it openly, would consider the voluntary simplicity movement an enemy of the state in that its end result is to reduce consumption and therefore production, employment and investment.

So it will probably become clear in a short time to everyone that we owe our allegiance not to the U.S. government but to the U.S. industrial state which provides us with much more than Uncle Sam does.

Compensation in Question

For many years well educated, experienced (and sometimes well-connected) people have generally earned more than their workplace peers. American labor history has traditionally treated seniority, knowledge and skills as most important in deciding how much to pay someone. But given current trends in the business environment those standards may no longer be applicable. Certainly worker longevity and workforce continuity hold some value to business and other organizations but trends in employee turnover and the corporate emphasis on near-term results has undoubtedly eroded this value. Technology and the ability to measure more precisely a worker's activity and contribution may render obsolete these traditional measures of employee value and displace them with more quantifiable measures of worth to a firm.

Experience and seniority sometimes matter, but the employee-employer relationship has evolved to place much greater attention to a worker's contribution to the firm's short-term goals. And with the exception of unionized and some state employees, few workers expect or negotiate any additional compensation for being with a firm for an extended period of time. Nor can firms today expect to employ the same person for much more than the current product cycle given the fluid and unpredictable movement of global production and supply chains.

Paying wages according to an employee's true value to a firm is increasingly measured in terms of productivity. In the past this been largely limited to piece-work, typically on a farm or small manufacturer where the worker is paid a fixed amount per bushel harvested or other unit of measurement. Many factories in early-industralizing economies pay workers by the piece and therefore the more productive are compensated above others although at a relatively lower wage than those in other industries. Farm workers are still often paid this way. In advanced industrialized economies currently the only system of compensation that factors a worker's productivity are in sales commissions where those who generate the most sales for a firm are more highly compensated than those who don't.

Productivity is broadly meant to mean the level of output per unit of hours worked. In the 1990s, productivity of American workers grew very quickly owing largely to the Internet and the efficiencies that digital communication and information handling allowed workers. Technology has historically increased worker productivity from the time of crude tools fashioned with wood or metals to the telegraph, printing press, telephone, etc.

But if productivity is what firms are buying in today's labor market, and if the application of technology in the workplace results in higher productivity then it stands to reason that employers seek those with advanced technological skills because they produce more per hour worked. In the past 20 years, technological aptitude has accrued to the younger (and therefore) less experienced workers. Management guru, Don Tapscott says, for the first time in history "younger people know more than their elders about the biggest innovation of the day." This disparity between skills and experience leads me to conclude that there will be pressures to limit the wages of the most senior (and generally less technologically adept) while inflating wages of the digital natives and neo-natives.

Information technology makes productivity more measurable and with the skills obsolescence cycle shorter, I wonder how we will in the future decide how much each person earns. I suppose the first reaction is that we shouldn't decide, we should let the market decide. If that were allowed to happen, most of us would be in for big changes. The most productive workers would receive the highest compensation in a purely market-base approach to determining salaries and that would in large part mean the younger are paid more than older workers.

[Postscript: Of course Marx would have added, "Need" as a factor.  "From each according to his abilities; to each according to his need." Would it be fair if a single parent with 4 children who produces as much as I do (a married, childless man) should be paid more based on his need?]

Free Higher Ed Lectures but is Certification What Employers Want?

College level courses are available to a larger audience than ever before thanks to digital media. Many of them are available at no cost. YouTube for example has an 'edu' channel which carries lectures and other educational videos. This means that a person can essentially attend college classes without paying any fees. They won't take any exams, turn in any term papers or receive any grade and most importantly they won't receive any credit. But at least some of them will learn something about the course subject. Many will fail to stay with the entire series of lectures, but others will become highly engaged and perhaps know as much or more than the on-campus student who pays tuition and completes the course in person.

This has been a long time coming. Since the invention of moving pictures, radio and television, people have been eagerly anticipating a change in the delivery of education and a much broader reach, serving millions of people who otherwise would never receive any comparable instruction.

However, the other (and for many people, primary) objective of higher education is in securing employment. Independently watching hours of college lectures supplemented by readings on one's own offers no such assurance. In the past, employers traditionally have depended on colleges and universities to provide some assurance that job applicants have absorbed the right information and went about learning in a disciplined, systematic manner. For example, at one time the baccalaureate ensured that students are able to compose a thoughtful essay that supports a certain viewpoint and cites facts to that end. But from what I read in the newspapers, many of today's college graduates lack many skills that an undergraduate education previously conferred. It seems today that paying tuition, attending class, completing assignments (for better or worse) and basically acting responsibly are all that seems to be needed to earn a bachelor's degree.

I wonder then about giving away content (in the form of free online lectures) when presumably many people pay tens of thousands of dollars for the same content. Are they paying for the information that could before now only be obtained by enrolling in an institution of higher learning? Or are they buying something else?There is no guarantee that a job is forthcoming for either the independent student or the matriculating, tuition-paying student. The only difference is that the latter (for the time being at least) is more likely to be invited to an interview.