The challenges of inequality

The great Heidi Moore of The Guardian writes about the sad juxtaposition of the fortunes being made in the Twitter IPO and the first round of cuts in SNAP benefits (food stamps). Bonnie Kavoussi has a new blog where her first post is about the growing emotional and physical tie of workers to their jobs because of lessened security in the tepid recovery. Larry Mishel of the Economic Policy Institute (who I had the pleasure of siting next to at a recent Dissent Magazine celebration) writes a series of pieces about how the problem of slow job growth is not due to automation (or the hollowing of the workforce) but rather weak policy responses to the bursting of bubbles and the stagnant economy for the overwhelming majority of Americans.

I think all of these folks would agree that this is the fundamental graphical depiction of the challenge

which shows the change in productivity (high) and median wages (low) from the mid-1970's until today. The fundamental question is why? (Thanks to EPI for the graphic) The reasonable explanations include loss of worker power due to uncertain labor market conditions and decline of union protections, the internationalization of labor markets due to off-shoring, capital inflows into the US from bad trade policies where we import finished goods and capital which provides an incentive to automate production, increased reliance on financialization of industry and increasing dependence on service companies for employment.

As a former executive from the software and automation industry I have always been interested in the hollowing out hypothesis that Mishel refutes. To some extent it is intuitive that automation would be applied to higher paid, lower skilled jobs (like material handling or administration). Anecdotally I have seen that in projects that I participated in during my years in business. However, the most successful projects didn't eliminate positions in real time but rather increased productivity so that as the businesses grew they would need to apply less labor effort to the enterprise. Yet as I go through the checklist of places I helped from the mid 1980's until 2010 I recognize that many of the projects involved either manufacturing or distribution/warehousing firms that eventually off-shored. Of course I saw my share of service industries that are still in business and placed a premium on more accurate information which improved customer service but lessened labor content of service delivery. In the end there are lots of reasons why but we arrive in the same place, the benefit of economic progress (productivity) flow to those with the power.

These are the threads of the debate about inequality and what to do about it. You can't deny that that we are staring at a chasm of economic inequality greater than at any time since the Great Depression. In recent months this has drawn critical appraisal from Pope Francis, President Obama and a vast array of government officials as well as commentators on the social, economic and political environments. This weekend marks the beginning of the ASSA and AEA 2014 in Philadelphia which should be an interesting intellectual battleground between those looking to do something to help heal the festering sore of inequality and those looking to stoke the fires of austerity which promise to make things worse.