The American Labor Crisis

            In economic theory, labor is often analyzed from two perspectives. The first is how corporations decide the right amount and type of labor to invest in. The second is how individuals decide to make their choices in terms of employment. For most of economic history, these have been quite adequate for analyzing the result of different economic outcomes. Often decisions have been made from these perspectives in order to maximize economic output. There is, however, a third perspective that is often not discussed within the labor context—disparity of wealth.

 

            Certainly there is a lot of discussion on disparity of wealth; usually in terms of the amount of danger it poses to a society. In societies where wealth disparity is extremely high, there are a lot of problems in terms of security, health, and welfare. In human history, disparity often is a result of under developed societies that become more equal as economies develop. There are some arguments that the Kusnetz curve (an economic principle in which societies become more unequal as they develop and then more equal after development) might have a continuation that shows disparity increasing beyond development. While no industrialized nation has yet to see disparity become an extreme problem, it does seem to be occurring in today’s society.

 

            One reason for this disparity is the way in which payments to labor have decreased while payments to capital have increased. This may involve a complete rethinking about the way in which labor is rewarded. Typically a society should allocate to labor its marginal productivity – that is labor should be paid in accordance to what it makes. This, however, has become problematic as the payments to capital have become higher and higher as labor has been seen as either obsolete or easily replaceable. While it is hard to ask the question “What wage should labor be paid?”. There’s a clear problem that will occur not just for those who aren’t being paid, but also for those who are trying to sell their products. Beyond a certain point, goods pricing will have to decrease, but this may only occur after much economic hardship. Keynes often argued that the wage paid to labor should be uniquely analyzed since it is that wage that will funnel back into the economy. If wages continued to be decreased for a vast proportion of society, then there could be a economic freeze-up that will cause a lot of problems.

 

            In some cases, this almost hints at socialism (the kind that has often been adopted in many European countries). I am not advocating a move towards this, but only looking to a solution for wage disparities. In this case, as resources are naturally allocated to capital owners and away from labor, the government steps in to mitigate this disparity. While providing for basic services like education and healthcare, there is still ample upside gain for those who decide to push themselves harder in order to earn higher returns from their intellectual capital. It is often hard to ask companies to subsidize their labor through higher wages and setting a wage (above a minimum wage) would clearly limit the economic possibilities companies have and thus limit economic gains. At the same time, extreme gains as earned in America often are destabilizing instead of creating prosperity for society.