March 24, 2015


Where Have All Our Wages Gone? (Megan McArdle, 3/24/15, The Atlantic)

What happened? Here's my working theory: The disparity between government and private-sector outcomes had become too great. People in a coastal city have trouble imagining this, but in smaller places -- particularly rural areas --teachers are relatively affluent. Their salaries are good by community standards, they can't be fired, their benefits are outstanding, and they get three months off a year -- which, no, they do not all spend on 12-hour-a-day lesson planning, and if you're going to insist that they do, then no one in your small town had better see a teacher at the shopping center or the community pool in the middle of the day. People do like their teachers, and they will get mad if you speak ill of them. That doesn't mean that they're willing to see their taxes increased to cover pension deficits and guaranteed salaries and gold-plated benefits, not when they themselves had to cancel the vacation and pull Junior out of travel hockey.

It's all very well to say that instead of punishing teachers, we should give everyone else the same job security, benefits and so forth -- and, well, lots of people said that. The problem with that is that no one proposed a realistic plan to do so in the face of foreign competition and automation. The price was winning. And that, in turn, lowered the price people were willing to pay for government workers in Wisconsin. Or for health care. Or for other sectors, shielded from competition, where unions have managed to hold on.

If you're not depressed yet about the future of wages, here's the real kicker: Trade doesn't just sort of evenly depress wages across the board. It has favorite sectors that it likes to pick on. One of those sectors is agriculture, and OK, it's not like we all pine for the days of those fantastic migrant worker jobs that used to let a man support a middle-class family in style. But the other sector it really likes to pick on is manufacturing. And manufacturing jobs tend to have higher productivity than service work, particularly for less skilled workers. 

According to my handy Bloomberg terminal, GM's U.S. operations, with around 50,000 hourly employees, generate $85 billion in revenue. Wal-Mart's U.S. operations, with around a million hourly employees, generate about $330 billion. Much more revenue -- but to make four times as much money, Wal-Mart needs 20 times as many front-line employees. Of course, this is necessarily a very crude metric, because more of Wal-Mart's workers are part time, and it also takes more in the way of inputs and capital to make a car. Yet no matter how you refine those numbers, you cannot make them add up to auto-worker wages for retail work.

You often hear that U.S. manufacturing is in decline, which is incorrect. U.S. manufacturing output is doing splendidly. What's suffering is U.S. manufacturing jobs. And the jobs available in other sectors for lower-skilled workers don't pay as well as the old high-productivity manufacturing jobs. You just can't generate massive economies of scale in fast food or hairdressing.

We should be careful about getting too nostalgic for the old manufacturing jobs, which did indeed pay well but were also pretty awful. I've spent some time looking at assembly lines for work, and they always inspire two thoughts: "Wow, how amazingly productive all this is!" and "Wow, I would kill myself if I had to spend the rest of my life doing this." Line work is monotonous in a way that even the proverbial crappy retail job is not. In fact, I am struggling to think of any other sort of work that is so particularly ill-suited to the human psyche. This was something that everyone knew about these jobs right up to the point where they started going away and we got all misty-eyed for a life spent riveting the same four bolts into place on a car frame.

Picking crops is worse, which is why we had slaves.
Posted by at March 24, 2015 1:40 PM

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