Sixties Nostalgia

by Dave Schuler on December 12, 2012

Harold Meyerson’s Washington Post column this morning was, no doubt, inspired by the passage of “right to work” laws in Michigan yesterday. The upshot of his column is that he’s against them:

What conservatives haven’t acknowledged, and what even most liberal commentators fail to appreciate, is how central the collapse of collective bargaining is to American workers’ inability to win themselves a raise. Yes, globalizing and mechanizing jobs has cut into the livelihoods of millions of U.S. workers, but that is far from the whole story. Roughly 100 million of the nation’s 143 million employed workers have jobs that can’t be shipped abroad, that aren’t in competition with steel workers in Sao Paolo or iPod assemblers in Shenzhen. Sales clerks, waiters, librarians and carpenters all utilize technology in their jobs, but not to the point that they’ve become dispensable.

Yet while they can’t be dispensed with, neither can they bargain for a raise. Today fewer than 7 percent of private-sector workers are union members. That figure may shrink a little more with new “right to work” laws in Michigan — the propagandistic term for statutes that allow workers to benefit from union contracts without having to pay union dues.

If Mr. Meyerson’s thesis is correct, I would think that the sectors with the strongest unions, like automobile manufacturing or trucking, would have not only higher wages but the highest aggregate wages. Imagine a graph that depicts the wages received by union workers. The Y-axis of the graph shows how high the wages are, the X-axis how many workers are receiving the wage. What I think that collective bargaining has accomplished is increasing the wage while lowering the number of people receiving that wage. See, for example, the history of the UAW over the last thirty years.

I don’t think that high wages for unskilled and semi-skilled workers can exist peacefully with borders that are open to cheaper goods from overseas and immigrant workers willing to work for less. My example would be the meat-packing industry. The U. S. meat-packing industry, concentrated in the upper Midwest, used to be one in which the workers received good wages. That’s no longer the case. An influx of immigrant workers, first from Mexico but now increasingly from Somalia, put an end to it.

I think that Mr. Meyerson is being nostalgic for the United States of the 1960s, the time when he was in high school and college. Let me tell a story to illustrate how.

Once upon a time the United States was a country in which the marginal utility of labor was rising. That is, the more people a company hired, the more money it made. In that country increasing the number of workers by immigration didn’t push down the wages of other workers. That was the way things were here until about 1970.

Now we’re an entirely different country. The marginal utility of labor for unskilled and semi-skilled workers is flat or decreasing. More unskilled or semi-skilled workers means that wages go down for other unskilled or semi-skilled workers. It isn’t the lack of collective bargaining rights but the lack of collective bargaining power.

One policy decision at a time we’ve gone from a country where healthcare was cheap and televisions were expensive to one in which healthcare is expensive and televisions are cheap. We could be the country we were in 1965 again. That was a country with lots of trade barriers, not much in the wage of environmental laws, much lower immigration from Mexico and the Caribbean, and in which non-whites were barely counted in the unemployment statistics. It would take a lot more than unions to do it and I doubt that most of us would want to live with the changes that would need to be made.

{ 12 comments… read them below or add one }

steve December 12, 2012 at 9:46 am

I am sure you have seen the charts showing the disconnect between productivity and wages. I am not sure that unions are the way to realign that. Maybe in the rest of the world, but they dont seem to work as well here, maybe largely because of our laws. I am concerned that a permanent disconnect would lead to poor economic performance and then to social instability. Globalization is part of it, outsized returns to capital and to management contribute, but int he long term, what does automation run amok really do? I think we are going into uncharted waters.

http://www.nytimes.com/2012/12/12/opinion/global/jobs-productivity-and-the-great-decoupling.html

Steve

Dave Schuler December 12, 2012 at 9:53 am

It would be interesting if relevant. It’s not. Wages aren’t determined by productivity but by the supply and demand for labor.

Give me an example. Show me how increasing productivity in healthcare has lead to higher wages for physicians.

Jimbino December 12, 2012 at 10:14 am

I don’t think you mean to refer to “rising” or “flat” marginal utility curve. Except for rare situations like ping-pong, sex, contract bridge or parades, every additional participant after the first brings less to the table. In almost every practical scenario, we are stuck with a declining marginal utility–of money, pizza-delivery guys, chocolates.

Marginal utility of workers has generally declined throughout history and in all industries. The real question is how fast is the rate of decline in marginal utility and whether marginal utility is positive or negative.

You must be referring to the “utility” curve, which generally does rise, later peaks, then falls. Marginal utility is the slope of that curve, which generally monotonically declines from positive to negative values.

Understanding economics does require some mathematical sophistication, which is why our POTUS, COTUS and SCOTUS, being mostly lawyers who have studiously avoided math and science, haven’t a clue about economics.

PD Shaw December 12, 2012 at 10:20 am

I don’t know what its like in the golden city of Washington D.C. where money apparently just flows in from somewhere, but around here where times are a bit tougher, people have pulled back their spending on services provided by”Sales clerks, waiters, librarians and carpenters.” That’s not because they are competing with foreign labor as in the case of manufacturing, but because those services have other substitutes. One can bring a lunch to work, delay home improvements or DIY, or buy goods on-line. Collective bargaining power is constrained by substitutes in services, just as it is in manufacturing.

(The librarian example is odd, being most frequently in the public sector and around here would be unionized. Also fewer librarians employed around here in the schools and by the city)

steve December 12, 2012 at 12:21 pm

“Give me an example. Show me how increasing productivity in healthcare has lead to higher wages for physicians.”

The introduction of intracap cataract surgery, foldable lenses and no suture techniques lead to a huge increase in salaries for Ophthalmologists since they could do 3-4 times as many per day. The increase was so large CMS had to reduce fees for cataract surgery.

Standardized template driven total knee replacement sets rather than free hand cutting cut knee replacement times by half, at least, and coupled with the use of mid levels has made orthopedics pay very well.

The usage of blocks for post op pain over traditional narcotics has moved a lot of surgery from in hospital to outpatient surgery (shoulder surgery being a good example). This has lead to increased wages for anesthesiologists.

Just a few specifics, but if you want to talk in generalities, laporoscopic surgery means people go home the same day or a day or two for procedures that previously required weeks in the hospital. Patients return to work much sooner. Better ventilation techniques and drug management mean people go home much sooner after heart surgery and back to work sooner. Stents mean people go home and back to work even sooner.

Steve

steve December 12, 2012 at 12:39 pm
Dave Schuler December 12, 2012 at 1:32 pm

What I’m trying to get at, steve, is why so much of the economic surplus in healthcare is producer surplus rather than consumer surplus, as can be deduced from changes in prices and outcomes. I think the answer is barriers to entry. If we were willing to introduce barriers to entry both for goods and labor in the United States, I strongly suspect that median wages would rise. So would the prices of consumer goods. As a society we’ve elected to drive down the prices of consumer goods at the expense of jobs and wages. I think it’s time to re-visit that trade-off.

Also, see under your link #4.

PD Shaw December 12, 2012 at 4:37 pm

To my untrained eye, it seems to me that Mankiw is talking about how productivity relates to wages within the context of groups (firms). Dave is stating how wages on an individual basis are determined.

For example, the widget factory begins to produce more value over time. Assuming the output results in increased profit, there are several places the money could go: (1) the engineers, so they could design new widgets or make improvements to current production; (2) the line-workers, which will make them happier and perhaps more productive; (3) sales and marketing, which will be needed to increase demand for the product without having to cut prices; or (4) ownership, either to take profits or expand the business.

Again, I think Mankiw is saying increased productivity will “on average” increase wages on average, but not for every worker. For each worker, their wage will depend on how replaceable they are (supply and demand). Since (2) is highly replaceable, they are least likely to capture the advantages of increased productivity without collective bargaining, but if they take too much, starving (1), (3) & (4), the firm will go into decline in a competitive environment.

steve December 12, 2012 at 7:46 pm

“To my untrained eye, it seems to me that Mankiw is talking about how productivity relates to wages within the context of groups (firms). ”

Which is what I noted when I said wages are becoming disconnected from productivity. There are reasons why there may be a disconnect for any given worker. I think we have a problem if they become disconnected for workers in general. If we have continuing increases in productivity with no benefit to workers, has the Marxist critique come true?

Steve

PD Shaw December 13, 2012 at 10:16 am

I think Marx would point out that the widgets are assembled from overseas labor and parts, and that (1),(2),(3)&(4) are all obtaining wages on the exploitation of the third world.

I think part of the problem with the productivity arguments is that most of us don’t design, assemble and market widgets. Arnold Kling points out that much of the labor force resembles capital, and our ability to articulate productivity gains or losses attributable to that type of labor is very imprecise. I think its implicit in the argument for more government control over medicine that neither doctors, nor their patients, necessarily know the cost of value of medical services.

The economy doesn’t look like its in a Marxist spiral to me. I’ve been frequently hearing about manufacturing jobs that can’t be filled, offering something like $14-$18 per hour, though second or third shift. It seems like some people would prefer to be petty bourgeoisie, for perhaps even less pay, or perhaps there are too many overweight Americans for many working class jobs.

PD Shaw December 13, 2012 at 10:16 am

I suppose you saw this (h/t Marginal Revolution), arguing that productivity gains in manufacturing are illusionary:

http://conversableeconomist.blogspot.in/2012/12/cautionary-details-on-us-manufacturing.html

Dave Schuler December 13, 2012 at 10:35 am

That’s for that link, PD. Yes, that’s my experience exactly. Let me give a specific example.

For all intents and purposes we don’t manufacture memories, i.e. RAM, in the United States at all. Haven’t for well over 20 years. Talk about strategic materials! RAM is a strategic as as oil is and we’re completely dependent on China and the supply line that reaches across the Pacific.

One of the reasons computers are so much less expensive, i.e. we’re more productive, is that we don’t manufacture RAM. We don’t have a great deal of computer manufacturing here at all. Just assembling and not much of that.

BTW, the IT sector is actually shedding jobs. Remember that when you see the ads on TV to become a computer specialist.

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