There are, by my count, now four main potential explanations for the mysterious slide in labor’s share. These are:
- China,
- robots,
- monopolies and
- landlords.
1) The China hypothesis basically says that the opening of the Chinese and Indian economies, combined with the invention of globalizing technologies like the internet and containerized shipping, dumped a flood of low-cost labor onto the world market, allowing multinationals to shop around for cheap workers while raising their profits.
.. One problem with this theory is that, according to Chinese statistics, labor’s share has been falling there, too.
2) ..The robots hypothesis says that as technology gets cheaper, employers are substituting machines for workers.
.. labor share is falling across the whole economy, but not within companies.
3) .. the economy is simply shifting resources toward a few large companies that are very capital-intensive, and away from the more numerous, smaller companies that use more human labor. Autor et al. blame increasing monopoly power for labor’s decline.
4) .. While analyzing the work of French economist Thomas Piketty, Matt Rognlie found that national income accounts showed an increasing amount flowing to owners of land.
.. A recent blog post by Paul Krugman
.. When the productivity of the capital-intensive companies improves — due to mechanization, or the internet, or globalization — it shifts production toward those companies, and lowers wages in the process.
.. Now suppose that those capital-intensive companies are a small handful of superstar multinationals, while the labor-intensive companies are a bunch of small, local competitors. Improvement in robots, information technology and globalization would therefore be shifting resources away from the many and toward the few
.. new technologies that disproportionately help big, capital-intensive multinational companies.
Putting pressure on China probably won’t help U.S. workers. Here’s what might.
But diagnosing China’s sins is not the same as stopping them. The question is whether Trump, at this week’s summit with Chinese President Xi Jinping and in the future, can hit upon a strategy that actually helps U.S. workers.
.. Method two stands a better chance. It is to welcome China to the top table of the international system, and then demand that China play by the rules. After his failed bilateral experiment, this is what Clinton came around to: He brought China into the World Trade Organization. Since then, China’s behavior has not been perfect, but Beijing has abided by its WTO commitments more than reasonable commentators expected.
.. For the past three years or so, Chinese leaders have claimed interest in international law and China’s contribution to it.
.. Given China’s concern to be seen as a respectable superpower, the best way to constrain it is to promote international rules. Trump’s first instinct has been the opposite: He has denigrated the WTO, asserting that bilateral pressure is better. But there are signs that Trump is mellowing. He may be open to a better way.
.. China’s trade surplus with the United States is an extremely poor measure of misconduct: It reflects factors ranging from the dollar’s reserve-currency status to China’s tendency to import parts from third countries, assemble them, and sell the finished products to America, so that a Korean semiconductor might show up as a Chinese export to the United States. Unless the Trump team discards its bilateral metric, it will discredit its China policy by sounding clueless.
.. But that still leaves room for getting tough. Appealing to China’s professed belief in a fair international system, Trump could propose a cut to China’s auto tariff, which, at 25 percent, is fully 10 times higher than the auto tariff imposed by the United States. He could warn China against aggressive use of subsidies and procurement muscle as it builds its next generation of industries in tech and aircraft.
5 Economics Terms We All Should Use
• Endogeneity
Something is endogenous when you don’t know whether it’s a cause or an effect (or both). For example, lots of people note that people who go to college tend to make more money. But how much of this is because college boosts earning power, and how much is because smarter, harder-working, better-connected people tend to go to college in the first place? It’s endogenous.
.. you should ask “What about endogeneity?”
• Marginal versus average
• Present value and discounting
.. Present value means trying to figure out how much some long-term thing is worth today. To find present value, you have to use discounting, which means you have to decide how much less you value things that come far in the future. The more you want things right now, the higher your discount rate is, and the lower the present value of things like college degrees or business investments that take a long time to pay off.
• Conditional versus unconditional
.. If you lived in the Middle Ages and you made it to adulthood, you would probably live well past 35. While conditional life expectancy has increased since then, it hasn’t gone up by nearly as much as the unconditional version — reductions in infant mortality have been the biggest difference.
• Aggregate
.. Individually, borrowing and spending money reduces your wealth. But in aggregate, debt doesn’t reduce the value of the whole world’s wealth, since one person’s debt is another person’s asset. When we consider our own lives, it makes sense to think from an individual perspective, but when we discuss government policy, it’s important to think in the aggregate.
What if Sociologists Had as Much Influence as Economists?
some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem.
.. “Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer,”
.. while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.
.. But what social values can do is say that unemployment isn’t just losing wages, it’s losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function.”
.. in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than as an arbitrary matter. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection.
.. the industrial economy offered blue-collar men a sense of identity and purpose that the modern service economy doesn’t.
.. “When no one asks us for advice, there’s no incentive to become a policy field,”