A split opinion about one of my favorite topics.
This topic is very dear to my heart as I understand well that a rising tide does not lift all boats (as the saying goes)…..a rising tide sinks those without the money to buy a boat.
Also, people deal poorly with inequality psychologically. They are not swayed by absolute wealth past persistence needs, but prefer to be better off than their neighbors rather they have everyone have a little more. That’s great for those with more, but as more and more goes to less and less, it creates more and more resentment, stress, and unhappiness for those left over (which is just about everyone).
There is a sin tax on beer and wine and such….I think it is reasonable to have an “unhappiness tax” acknowledging that earning grossly more than everyone else creates anxiety for society at large. While I’m on the topic of preventative taxes, I also think SUVs whose hood comes up to the windshield of normal sized cars should be taxed extra for making the roads more dangerous for the rest of us.
Working in India put a different spin on wages for me as I watched people do the same highly skilled job as me for 6 times less salary. The argument for why those in the bottom twenty percentile of earnings in the US have made negative real wage gains over the past twenty five years is immigration. Immigrants start at the bottom of our wage food chain and since immigration has accounted for almost all US population growth in recent years…..the argument is that there is an ample pool of cheap labor even though there seems like there shouldn’t be.
The lesson is that the supply of labor in a particular labor market greatly affects wages…regardless of the skill level needed to perform the job. So take a skilled job like computer programmer that is fairly well paid. It is paid so largely because there is a limited pool of labor that knows how to do it….not necessarily because the job is more productive than lower skill level jobs.
All things being equal (which I realize they never are), when supply of labor jumps the wages of the labor decreases. What this has to do with India and wage inequality is that outsourcing does cause us to lose jobs in certain cases (although in certain cases it just looks like that is what it is doing), but it also causes the average wage for that job here in the US to decrease. If an Indian computer programmer makes 10 chits an hour and a US computer programmer makes 100 chits an hour….and they are both suddenly thrown into a common labor pool (which technology has made possible), then eventually all programmers will make 55 chits an hour in my oversimplified model.
So we see the wages of the middle class, in skilled productive jobs, squeezed because the size of their labor pool has jumped…even if some of the pool is living on the other side of the planet. If you sit in front of a computer all day in your job, I wouldn’t expect your job to be around in 10 years (or sooner). If it is around, be certain that you won’t be making as much doing it.
There is always a fight between Labor and Capital for profits of work. The winner in all this is Capital….those who earn money through dividends, interest, and capital gains. They skim (not implying illegally) money from the difference between the old wages and the new. Business gets richer, the wage earner in the US gets squeezed, and on a side note for everyone who has a soft spot for third world or developing countries…the US essentially pays to develop the third world through increased profits stemming from decreased wages. Remember wages (in the US) are the single largest expense for most employers (greater than half of revenue goes to labor cost usually).
That is making no judgment about what development can destroy culturally or environmentally, but, as demand to immigrate to the US shows, most people would love a shot at our lifestyle. Forget the IMF, World Bank, UN, and all the other INGOs trying to end poverty….teach the third world to speak English, build them a communications infrastructure (which can be done wirelessly fairly cheaply), and show them how to use a computer……and US business will do the rest.
Actually, that doesn’t sound so easy. Perhaps better to bet on discovering oil and let corrupt politicians hoard and waste the money….hmm….that doesn’t work either.
Ok, obviously it is hard to end poverty and develop the third world, but a good start would be to let the US find ways to outsource more jobs. Then maybe we could become a third world country too and someone will be kind enough to outsource their jobs to back to us.
If there is a lesson here, which there doesn’t seem to be, it is to move from the Wages camp to the Capital camp. Wage earners seem to be screwed. Open a business and then YOU can exploit the advantages capital enjoys these days.
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