The tide of falling compensation for labor may be about to change, by John Rubino.
Workers, it seems, have been producing more per hour but their pay hasn’t kept up as their bosses held onto more of the resulting profit.
A big part of this has been due to offshoring. If you close a factory where the workers make $30 an hour and set up in a place where your new workers make $5, then the $25 difference flows to the bottom line.
Other contributors are automation, which is both inexorable and hugely favorable for the guys who own the robots, and the fact that the minimum wage in many [US] states has kept up with neither the true inflation rate nor the increase in free-trade driven corporate earnings.
This 6.8 percentage-point decline in labor’s share of corporate income might not seem like a lot, but if labor’s share had not fallen, employees in the corporate sector would have $535 billion more in their paychecks today. If this amount was spread over the entire labor force (not just corporate sector employees) this would translate into a $3,770 raise for each worker.
For stock market investors, the scary thing about this imbalance between capital and labor is that it’s only temporary. As the details and magnitude of the scam have been exposed, the political tide has shifted. At the national level, fed-up US workers have installed an anti-free trade administration that is already tilting the playing field towards domestic workers. At the state and local level, calls for a higher minimum wage are being heard and acted upon. A major French party has even nominated a presidential candidate who wants to tax robots.
Labor is now more aware (or desperate), and is starting to vote in governments that will boost labor’s share of the economic pie. Oddly, it is “right-wing” parties that they are voting in to do this, because the left wing parties have abandoned their working class roots and are now into identity politics and being part of the new global elite of taxpayer funded folks who get paid heaps for little actual work.
Notice too that the labor compensation fall-off started when the link from our currencies to gold was broken, in 1971. This allowed the finance industry to capture a greater share of profit. Most of Trump’s cabinet favor a link to gold but, like Reagan said, re-establishing a role for gold in the world of manufacturing money is probably a bridge too far.