Why wages are falling (British version)

Rising profits, declining wages in Great Britain

Rising profits share, declining wages share in Great Britain

A British blogger reports that the same thing is going on in Britain as in the USA.

Back in the 70s and 80s, bosses could often not efficiently monitor their workers. To keep pilfering and skiving within tolerable limits they therefore had to pay better than market-clearing wages, to buy goodwill.  The upshot was that wages rose even during downturns, because bosses feared that real wage cuts would create discontent and thus increase thieving, insubordination and malingering.

This led to a huge literature in economics on efficiency wages, gift exchange and insider-outsiders, which tried to explain high and sticky real wages.

However, as Frederick Guy and Peter Skott have shown, socio-technical change since the 80s such as CCTV, containerization and computerized stock control has made it easier for bosses to monitor workers.  Direct oversight means they don’t need to worry about buying workers’ goodwill.  They are instead using the Charles Colson strategy: “When you’ve got ’em by the balls, their hearts and minds will follow.”

Years ago, firms wanted smaller but motivated workforces.  Now they can control workers directly, they don’t need to worry so much about motivation except, of course for top-level managers who cannot be directly monitored – hence their rising incomes.

All this has three implications:

1. Talk of “wage rage” misses an important point.  At the point of production – to use a quaint Marxian phrase – there is little meaningful rage, because workers can do little to fight falling real wages.  (This poses the danger that such rage will find perhaps misdirected political expression, such as in antipathy towards immigrants.)

2. Issues of industrial organization – how firms are organized – have important macroeconomic effects. Macroeconomics cannot be easily studied separately from industrial organization.   Economists need to look inside the “black box” of industrial structure.

3. You cannot understand economics without understanding power.  The fact is that bosses’ power has risen and (many) workers’ power has declined. In this sense, the rising incomes of the 1% and the fall in real wages for the average worker are two manifestations of the same process.

Click on Stumbling and Mumbling for the original.  Hat tip to Avedon’s Sideshow.

Click on The Market Oracle for the source of the chart.

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