Who took all the money? Why am I worse off than my parents?

Why are most of us becoming poorer?   Why don't the young people of today have more to look forward to?  Why are they burdened with debt and struggling to find decent work? Why do they seem destined to become poorer than their parents?

There are some short term factors at work. They will pass. More ominously, there are long term processes at work which will not pass but will make things worse.

The quoted text below is an edited extract from a column by Richard Wolff in The Guardian.

He was writing about the US, but I think the same forces are at work in the UK. The process is just more advanced in the US.

"Workers enjoyed a rising level of real wages that afforded their families a rising standard of living. Ever harder work paid off in rising consumption. The rich got richer faster than the middle and poor, but almost no one got poorer. Nearly all citizens felt "middle class". A profitable capitalism kept running ahead of labour supply. So, it kept raising wages to retain employees, across the 19th century until the 1970s.

Then everything changed. Real wages stopped rising, as  capitalists redirected their investments to produce and employ abroad, while replacing millions of workers  with computers. The  women's liberation moved millions of  adult women to seek paid employment. Capitalism no longer faced a shortage of labour.

Employers took advantage of the changed situation: they stopped raising wages. When basic labour scarcity became labour excess, not only real wages, but eventually benefits, too, would stop rising. Over the last 30 years, the vast majority of  workers have, in fact, gotten poorer, when you sum up flat real wages, reduced benefits (pensions,  etc.), reduced public services and raised tax burdens."

So, until the 1970s workers enjoyed rising living standards because the demand for labour exceeded its supply. Unemployment was low, people could easily change jobs and real living standards increased year after year.

Then, according to Wolff, three factors changed the labour supply and demand relationship.

1.  Globalisation allowed employers to use cheap foreign labour.

2.  Women joining the workforce provided another increase in the supply of labour.

3.  Computerisation and mechanisation reduced the demand for human labour.

I would add one other factor.

4.  Immigration allowed employers to use  cheaper foreign born labour.  Workers from the EU increased the supply of labour in the UK and pushed down earnings for certain occupational groups. Some foreign labour imported itself. There are an estimated one million illegal immigrants in the UK. I would guess that many of those are working and thus increasing the supply of cheap labour.

The effect of these forces in the USA are set out here.

I would think factor 2 has more or less played itself out. Most of the women that want to work are probably already in the labour force.

However, I believe we still have to see the full impact of a fifth factor, robotics and AI. Like computerisation and mechanisation  they could produce a  major reduction in the demand for labour.

The triumph of the Svenborgians

Wolff then goes on to say -

"The rich, however, have got much richer since the 1970s, as every measure of  income and wealth inequality attests. The explanation is simple: while workers' average real wages stayed flat, their productivity rose (the goods and services that an average hour's labour provided to employers). 

While workers delivered more and more value to employers, those employers paid workers no more. The employers reaped all the benefits of rising productivity: rising profits, rising salaries and bonuses to managers, rising dividends to shareholders, and rising payments to the professionals who serve employers (lawyers, architects, consultants, etc)."

The benefits of reduced labour costs have gone to the super rich and we have seen  the rise of a new Svenborgian global elite [link].

Is there any answer to the increasing impoverishment of the workforce?  Yes, I think there is. A government that represents the interests of employees instead of the interests of employers. That would interfere in the balance between the supply and demand for labour. That believes that we should  interfere with market forces.

I suspect their is nothing that can be done about AI and robotics but there is something that could be done about illegal immigration and  immigration from outside the EU.  If there are one million illegal immigrants in the UK there are one million criminals and the government needs to act effectively to remove them. It also needs to act further to reduce the levels of non-EU immigration.

Finally, there is something that can be done to reduce access to cheap overseas labour  by imposing tariff barriers. If a country keeps its exchange rate artificially low [ i.e. China] or fails to provide proper pay and welfare benefits it should have compensating tariffs imposed on its products and services.

We do not want to go the same way as the US. Their political system is hopelessly corrupt and I doubt if they can change. We can change and should do so if we do not want to be impoverished and have to  bear the social costs of inequality [link].

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