Reconciling low wages with high technology and high education

Question

This is one example of many recent doom storied prognosticating that the "millennial" generation will be the first in (recent) history to experience lower incomes than their predecessors—at least in western societies like the UK.

How can we reconcile the idea that millennials will earn lower wages with the observations that

• millennials work with better production technology than their parents did
• millennials have enjoyed higher levels of education/training than their predecessors, and are therefore presumably more productive?

Answer 1

It must be pointed out that, over at least a century or two, technology has been improving at the same time that median, mean, and bottom percentile incomes everywhere have been increasing. This seems to be nearly irrefutable evidence that technology doesn't itself make workers poorer.

Technology and knowledge makes society wealthier: even poor people all over the world now have enough wealth to own a small device called a cell phone that lets them have a rich life in terms of entertainment, access to services, banking, communication with their loved ones, etc. BUT, that doesn't not mean we all get paid more, because what money does is that it lets you buy somebody else's time. But obviously if you and I both produce more, it can't be the case than now I can buy more of your time than before.... We can both buy lots of things that our parents never even dreamed of, but we can't buy more of each other's time....

Its still definitely true that if your folks work manual jobs, you will get a higher income than they do because you will get a high productivity job. In fact you see a lot of uneducated people being supported by their children with reasonable jobs and being helped with the phone and the google maps and the Amazon shopping thing. The issue is that older people, on average have moved up the command ladder, so they are doing management and maybe managing all these youngsters that are super productive at the basic tasks that they are given. These youngsters are productive, but they are not the managers, and they couldn't be. Technology does not make them better at managing people, only experience and age give you that ability. So despite high productivity, they don't get paid a lot, specially since unemployment has been so high for so long. But, they will be paid a lot when they become the managers....

Of course, there are also differences in the distribution of income over time. Apparently, its true that the fraction of income going to workers (the "labor share") was low over the 90's and 2000's and also that general inequality within countries has increased. Also, young, low skilled workers, during this period suffered the brunt of the crisis, staying unemployed and learning less on the job that other cohorts. So, if you focus on the young, the low skilled, the ones that were looking for their first jobs between 2008 and 2011, you will probably find relatively low incomes. There are also individual skills that have been replaced by technology, like typists, or long distance operators.

Still, its hard to argue that the majority of the US young people are worse off in life than their parents.

Answer 2

Possibly it is because of the better technology that they will receive lower income.

When there where fewer programmers/engineers/whatever, these individuals could typically expect high salaries due to their scarcity, compared to today, where you can hardly go outside without bumping into about two programmers and five web devs.

This means that highly-qualified individuals may not be able to find jobs relevant to their qualifications at all, even if they are willing to accept substantially lower salaries.

This may seem more focused on jobs requiring higher qualifications, but that may be one of the big factors here, especially when it comes to averages.

In summary, could it possibly be that we have an over-supply of well-qualified individuals? (This may not apply to all countries or industries)

Answer 3

I think that Marx's theory (Capital, volume 1) illustrates some factors that can explain this phenomenon.

In a capitalistic production process, wages express the cost of production of labour power (one the factors of production), i.e. the resources that are allocated to workers in order to live and reproduce. The other factor of production are means of production: tools, machines, raw materials, which also have a cost.

In the production of commodities, means of production transfer value to the resulting product, e.g. from 1 Kg of flower you can only make so much bread: the output value (measured in money) contained in the produced bread is proportional to the money spent on the input flower. If you spend less money on flower, you get less bread, i.e. less bread money value.

On the other hand, you can change (reduce) the cost of labour power and still get the same value out of it: an average baker can bake the same amount of bread in eight hours of work, regardless of whether he / she can afford a mobile phone or not.

Therefore you can reduce the resources you invest on labour power and still get the same output value from a production process. You can use this property of labour power to increase profit by cutting labour costs.

So, yes, improved technology reduces the production costs of commodities, and therefore it would be possible to buy more commodities if wages were kept constant. But in capitalistic production, profit has the highest priority, therefore

1. Increased productivity is not a means to produce more free time or provide better living standards, but rather a means to outsell competitors by producing at a lower cost.
2. Increased productivity of labour means employees can produce more commodities in less time, but this eventually leads to lower commodity prices once the new, better technology has become mainstream. So workers will eventually produce more stuff per hour but not necessarily more money value per hour.
3. A measure to reduce production costs and increase profits is to cut the cost of labour power: the living standard of employees can be lowered, as long as they are still able to show up at work every day.

Since there is no mechanism that connects the purchasing power of wages with the changes in productivity, it can happen that wages are reduced more quickly than the improvements in technology can compensate for, leading to lower living standards in spite of better technology.

Answer 4

This report by the Resolution Foundation identifies the following factors for poor wage growth of the young:

• Productivity has been growing below trend levels for some time.

• Young people experienced the "great recession" of 2008, the worst economic downtime in several generations, at a crucial time in their early careers. Graduating into a recession has been shows to have long-lived effects of lifetime earnings. Even if young people's salary growth follows a similar profile to earlier generations, this one-off hit would leave them permanently worse-off.

• Employers less often invest in training for their workers than was the case in the past.

• Many employers have deliberately slowed wage growth to help fund shortfalls in defined benefit pension schemes held by retired workers—implying a large one-off wealth transfer from the young to the old.

• The generally poor employment situation has reduced the frequency of job switching, which depresses wages because moving job is a key way to get a pay rise.

Answer 5

With the advent of technology everyone has got more money for sure. But this richness is relatively same. Moreover, government taxes and inflation has doomed the economy. And the increase in NPA (thanks to bad loans) has caused depression. The gap between rich and poor has increased more. Do you know what percentage of economy does this capitalist own?

Answer 6

How do you measure "levels of education/training" ? People may spend more time in the education system, but it does not necessarily mean they get better working skills from there. A big problem with the academic system is that apart from rawly counting the number of years spent there, the qualification levels it brings are quite dubious because never seriously addressed in an objective manner similar to the kind of (more or less) necessary growth of productivity elsewhere pushed by free market in fair competitive enviromnents. See some references I collected of troubles in the academic system, including my own testimony concerning math&physics university teaching.

Now about lower wages, apart from the fact that those observations focus on highly developed regions that may be losing some of their geographical priviledge in a more and more globalized world, I wrote this list of possible causes of growing economic inequalities worldwide.