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Labor Union Decline, not Computerization, Main Cause of Rising Corporate Profits
Thursday, May 30, 2013
American Sociological Association
Provided by American Sociological Association
May 30, 2013
A new study suggests that the decline of labor unions, partly as an outcome of computerization, is the main reason why U.S. corporate profits have surged as a share of national income while workers' wages and other compensation have declined.
The study, "The Capitalist Machine: Computerization, Workers' Power, and the Decline in Labor's Share within U.S. Industries," which appears in the June issue of the American Sociological Review, explores an important dimension of economic inequality that has been largely overlooked in research and the national discourse.
"Most of the research on growing economic inequality focuses on rising earnings inequality among workers, including the growing income share of the top 1 or 10 percent," said study author Tali Kristal, an assistant professor of sociology at the University of Haifa in Israel. "But this is only part of the overall picture on rising economic inequality, or as Nobel Prize-winning economist and New York Times columnist Paul Krugman writes, this 'may be yesterday's story.' The other part is the distribution of national income, the total economic pie, between workers' compensation ('labor's share') and corporate profits. It's a zero sum game: whatever is not going to the workers goes to the corporations."
Kristal found that from 1979 through 2007, labor's share of national income in the U.S. private sector decreased by six percentage points. This means that if labor's share had stayed at its 1979 level (about 64 percent of national income), the 120 million American workers employed in the private sector in 2007 would have received as a group an additional $600 billion, or an average of more than $5,000 per worker, Kristal said.
"However, this huge amount of money did not go to the workers," Kristal said. "Instead, it went to corporate profits, mostly benefiting very wealthy individuals."
The question is: why did this happen?
Continue reading this story at Phys.org
Link to full article in the American Sociological Review
Why Can't America Be Sweden?
By Thomas B. Edsall
May 29, 2013
New York Times
Daron Acemoglu, an eminent economist at M.I.T., has ignited a firestorm by arguing that contemporary forces of globalization bar the United States from adopting the liberal social welfare policies of Scandinavian countries.
"We cannot all be like the Nordics," Acemoglu declares, in a 2012 paper, "Choosing Your Own Capitalism in a Globalized World," written with his colleagues James A. Robinson, a professor of government at Harvard, and Thierry Verdier, scientific director of the Paris School of Economics.
If the "cutthroat leader" - the United States - were to switch to "cuddly capitalism, this would reduce the growth rate of the entire world economy," the authors argue, by slowing the pace of innovation.
Acemoglu, Robinson and Verdier put their argument technically, but there is no mistaking the implications:
We consider a canonical dynamic model of endogenous technological change at the world level with three basic features. First, there is technological interdependence across countries, with technological innovations by the most technologically advanced countries contributing to the world technology frontier, on which in turn other countries can build to innovate and grow. Second, we consider that effort in innovative activities requires incentives which come as a result of differential rewards to this effort. As a consequence, a greater gap in income between successful and unsuccessful entrepreneurs increases entrepreneurial effort and thus a country's contribution to the world technology frontier. Finally, we assume that in each country the reward structure and the extent of social protection shaping work and innovation incentives are determined by (forward-looking) national social planners.
In a series of e-mail exchanges with the Times, Acemoglu said he believes that safety net programs in the United States are inadequate. But, if the thesis that he has put forth is correct, there is room for only modest expansion:
The fact that the United States is the world technology leader puts constraints and limits on redistribution at the top. The global asymmetric equilibrium is at the root of the United States being the world technology leader, but the mechanism through which this matters for innovation and redistribution is the very fact that the United States is such a leader.Acemoglu elaborated:
In our model (which is just that, a model), U.S. citizens would actually be worse off if they switched to a cuddly capitalism. Why? Because this would reduce the world's growth rate, given the U.S.'s oversized contribution to the world technology frontier. In contrast, when Sweden switches from cutthroat to cuddly capitalism (or vice versa), this does not have an impact on the long-run growth rate of the world economy, because the important work is being done by U.S. innovation.
These findings, if substantiated, will disappoint those who long for a Swedish-style mixed economy with universal health care, paid maternal leave, child allowances, guaranteed pensions and other desirable social benefits.
In a more detailed paper, "Can't We All Be More Like Scandinavians?" Acemoglu, Robinson and Verdier expand on their argument that the world is dependent on American leadership in technology and innovation to sustain global growth. In order to maintain its position at the forefront of global innovation, the authors contend, the United States must maintain an economic system that provides great rewards to successful innovators, which "implies greater inequality and greater poverty (and a weaker safety net) for a society encouraging innovation."
Asked for examples of America's leading role in innovative enterprise, Acemoglu listed: "Software (Google and Amazon), hardware and design (Apple), social networking (Facebook and Twitter), biotech, pharmaceuticals, robotics, nanotechnology, entertainment and retail (Wal-Mart)."
Unless the United States is prepared to initiate a world-wide slowdown, according to this line of thinking, it will have to come to terms with making relatively minor and marginal changes in its social welfare system:
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