The Valuation and Remuneration of Work in North America: Do Recent Real Wage Trends Reflect Just Wages? Charles M. A. Clark, Ph.D. Senior Fellow, Vincentian Center for Church and Society Professor of Economics, Tobin College of Business St. John’s University Jamaica, New York 11439 USA International Congress on 50 th Anniversary of Encyclical Letter Mater et Magistra (Christianity and Social Progress, 1961) by John XXIII. May 16-18, 2011 May 2011
Transcript
The Valuation and Remuneration of Work in North America: Do Recent Real Wage Trends Reflect Just Wages?
Charles M. A. Clark, Ph.D. Senior Fellow, Vincentian Center for Church and Society Professor of Economics, Tobin College of Business St. John’s University Jamaica, New York 11439 USA International Congress on 50th Anniversary of Encyclical Letter Mater et Magistra (Christianity and Social Progress, 1961) by John XXIII. May 16-18, 2011 May 2011
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Introduction The issue of a “just wage” is one of the oldest in the history of economics. In fact, all economic theories and systems have some variation of a “just wage” as the actual or desired outcome. The reason for the centrality of the idea that wages should be fair goes beyond economics, and is tied to the perceptions of the fairness or legitimacy of the social order in general. Even a slave economy is justified by theories of the inferiority of the slaves or the justness of their servitude. The variety we find in economic theories and systems on what constitutes a fair or just remuneration comes mostly from adherence to different theories of justice broadly conceived (which in turn are based on their philosophical anthropology). This is as true for modern neoclassical economic theory as it is for the more obvious example of medieval economic doctrines. In neoclassical economic theory wages are “just” when they reflect the marginal product of workers, that is what workers contribute to production. It is a long standing claim (as we will see below) that competitive markets will produce this result. In his encyclical Mater et magistra (MM) Blessed John XXIII rejects the assertion that the determination of wages should be left to pure market forces (MM n.71) and instead presents criteria for evaluating the “remuneration and valuation of labor” based on “just wage” tradition in Catholic social thought. One criteria of a “just wage” according to John XXIII is that worker productivity gains should be passed onto workers (thus agreeing with the view of neoclassical economics and all other “just wage” theories). However, the view of a “just wage” in CST goes beyond weal wages keeping pace with productivity gains. In the two countries being examined here we will see that real wages did not keep pace with productivity gains. In this presentation we will evaluate labor trends using economic theories supplemented with the Catholic social thought tradition, especially John XXIII’s contribution. Here we are following Leo XIII advice: “There is nothing more important than to look at the world as it really is – and at the same time look elsewhere for a remedy to its troubles” (RN, n. 14). To understand labor outcomes we need to understand labor markets, for wages are prices and prices are partly set by market forces (supply and demand). Yet labor is more than a commodity as it is an activity carried out by humans, thus we need to go beyond a purely economic analysis if we want to have a more meaningful evaluation of labor trends. Part One of this paper will review different views of what is a “just wage.” In the Part Two we will review the evidence of how workers have fared in Canada and America over the past 50 years, paying particular attention to trends in real wages, as this variable most affects workers and the community’s standard of living. We will thus look at the various factors that have affected real wages (market forces and government and social policy). In Part Three we look at one of the effects of the real wage/productivity gap: rising inequality. Most of our economic and social problems can be traced back to growing income inequality (which was made worse by real wages not keeping pace with productivity gains). Our economic and social
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health requires that we find a way to more evenly share social output. We will suggest three possible ways to promote greater equality.
Part One. Perspectives on Work and the “Just Wage” A “just wage” is essential for promoting social justice -- the right relationships upon which human flourishing can best be promoted. The importance of “just wages” to the well-being of the community is the main reason all advanced capitalist economies have considerable worker protections in the form of minimum wages, labor regulations, social protection, and redistributive tax and spending systems. Furthermore, it is why no advanced capitalist economy allows wages to be determined solely by supply and demand. The concepts of the “just wage” and the “just price” in the Middle Ages combined a concern for equity and efficiency, and served the same theoretical role as modern theories of wages and prices, that is they provide an “ideal” wage or price based on ethical criteria that came from outside of economic analysis. The modern economist evaluates observed prices from the perspective of a hypothetical “equilibrium price,” which serving the same role as the “just price” in mediaeval economic analysis, as the ideal yardstick to evaluate real outcomes. Furthermore, the “just price” and the “equilibrium price” focus not only on the individual transaction, but also include how this price affects the common good of the community. While the modern economist will tell us they are only interested in explaining observed phenomena (prices or wages), the fact of the matter is that all observation requires a point of view and observed facts need theories to social construct the facts they seek to observe, and these social constructions greatly shape how these social facts are understood. Prices are social constructions; they are not natural facts like the speed of light or the density of gold (both of which are independent of humans). When we bring Catholic social thought onto the analysis of the economic factors that shape wage trends, we are not adding something that is foreign or alien to economic analysis. Instead, we are questioning or challenging some of the philosophical assumptions upon which economic theories are constructed because we (Catholics) feel that these assumptions leave out important parts of the story, always keeping in mind that CST is not an alternative economic theory or model. Since wages are so important to the well-being of humans, and especially the poor, Catholics insist that this human element be given more prominence in economic analysis. How Economists explain the valuation and remuneration of labor. There are two main theoretical approaches to explaining labor market outcomes in economics: the neoclassical economic approach of viewing the determination of wages as being the result of market forces (just as other prices are determined); and the Post Keynesian Institutionalists (PKI) approach which sees that 1. Market imperfections limit the value of market only explanations for all prices; 2. There is no natural tendency towards full employment; and 3. Labor is fundamentally different from other commodities and cannot be treated as if it were soybeans. Both approaches have an implicit “just wage” theory which links rising real wages with
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productivity increases. The Marginal Productivity Theory of Distribution in neoclassical economics asserts that free markets will insure that incomes (wages, rents, interest and profits) will reflect the contributions of each factor of production to output. To use the words of the originator of this theory, John Bates Clark: “the distribution of the income of society is controlled by a natural law, and that this law, if it worked without friction, would give every agent of production the amount of wealth that agent creates” (Clark, 1965, p. v). Neoclassical economists will recognize that this theory will only hold under conditions of perfect competition, and that in the real world there are many market failures that can distort the linking of productivity with incomes. Many non-neoclassical economists reject the marginal productivity theory, both as a theory that explains actual market outcomes, and as a workable “theoretical” explanation of incomes under the hypothetical idea world of perfect competition. As Eileen Appelbaum (1979, pp. 115-6) has observed:
The labor market is not a ‘market,’ as that term is usually understood, for the labor market does not possess a market-clearing price mechanism. Variations in either money wages or in the real wage rate are unable to assure a zero surplus of labor, and thus eliminate unemployment. In the context of (i) an industrial structure that is largely oligopolistic, (ii) fixed technical coefficients in production and (iii) mark-up pricing, the demand for labor depends on the level of aggregate economic activity. It has little, if anything, to do with the marginal product of labor. The supply of labor, meanwhile, depends largely on demographic and other sociocultural factors, though it is somewhat responsive to changes in employment opportunities.
We will not go into the numerous theoretical problems of the marginal productivity theory, merely noting that most economists who are serious about explaining actual wage rate determinations now admit that institutional factors (such as power and government policy that PKI approach emphasizes) have to be included in any realistic understanding of wages. In the PKI approach individuals and groups shape the “rules of the game” with market outcomes being determined by more than just the laws of supply and demand. Wages are greatly shaped by public policy (especially social protection measures) and the economic power of workers and employers. Furthermore, PKI theories also recognize the social nature of production and that the social output is more than the sum of each individuals contributions to output, for the simple reason that many important contributions to economic output are outside of markets (such as parenting) and often are inherited free gifts (past on knowledge from previous generations). This is recognition of the social nature of production and income. More so than any other aspect of the economy, labor’s price and working conditions are determined by historical and social context: levels of unionization and collective bargaining; government protection of workers and the unemployed; social welfare protections; political and social values; family structures and other social, cultural and political factors. In the PKI tradition, a “just wage” is more than just workers being compensated for their productivity, but also includes the need for low inequality levels and high wage shares to keep aggregate demand high, and thus keep unemployment low. Catholic social thought on Work
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CST contribution to understanding of economic issues starts with its richer and more realistic understanding of the human person (Clark 2009; 2008); the Imago dei, which states that humans are created by God in His image and likeness, thus humans are endowed with reason, free will and a necessary social nature. This view of human nature suggests that we include rather than exclude social, political, cultural and spiritual aspects of the human person. Furthermore, it asserts, correctly I think, that the social, political, cultural and spiritual aspects of the human person influence and help to determine economic actions, and thus it is useful for economists to include them in their analysis—our understanding of economics is improved by taking this broader view of the human person, and it is greatly limited when it is excluded. Furthermore, CST includes values that are important for real happiness and authentic human development which a narrow economic perspective will exclude. This is important if we want to evaluate economic outcomes. While a Catholic approach would recognize that supply and demand factors will be important to explaining real wages, the Church has always asserted that market outcomes are not moral acceptable just because they are market outcomes, the standard of right and wrong, moral and immoral, is always the Gospel of Jesus Christ and the teachings of His Church, along with the natural law (“what the law requires is written on their hearts” Rom 2:15) which is discoverable to all who search for moral norms based on the nature of the human person. Markets and market outcomes are important, especially if they are constructed based on justice and equity, but market outcomes do not have the same weight as natural outcomes. Supply and demand always play an important role in economic outcomes and processes but that is often the beginning of the story and not the end. Markets are always socially constructed institutions and how they are constructed (the rules of the game) will influence their outcomes. Markets require tradition and command to work. They cannot create themselves and they cannot run themselves. When societies create markets they do so based on their values, or at least on the values of those with power. CST offers universal principles based on the values of the Gospels, which can help inform these social choices. In the Catholic social thought tradition work has dignity because humans have an inherent dignity and work is a fully human activity, it is an expression of our human nature, and it is where we as humans join God in His creative work, becoming “co-creators”. As John XXIII stated: “Work is indeed a great mission: it is the intelligent and effective collaboration of man with God the Creator” (Woelfel, 1961, p. 63). Work is how society provides for its material well-being. Work is also an essential part of the common good, both in the results of work (the social product) and in the process of production (social participation). Work is one of the primary ways in which humans participate in their communities. Unemployment is not merely exclusion from earning an income; it is exclusion for the social life of the community, from contributing to the community and from sharing in the benefits of social production. Few social activities help us develop the reality of solidarity more than work. Furthermore, the Catholic tradition, going back to its origins, rejects the negative view of work common in the Ancient world, as well as in modern times, that work is only for those of lesser social status (see particularly Veblen’s The Theory of the Leisure Class, 1899). This is best demonstrated by the
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example of the Apostles and most importantly by Our Lord Himself who spent most of his years on earth working as a carpenter. Since work is tied to man’s dignity, the worker can never be reduced to a mere commodity. A “just wage” is not and cannot be reduced to an equilibrium price for work. As John A. Ryan (1942, pp. 251-252) has noted:
“Equality between pay and work” is nonsense. There exists no third term by which to make the comparison. These incommensurate entities can no more be directly compared, as regards their equality or inequality, than sound and color. Nor does ‘equality between pay and the value of work’ mean anything, unless we are told how value is to be determined. ... The sum of the matter is that there can be no equality (nor inequality) between pay and work, but that pay can be equal (or unequal) to the value of the work; but the value of the work has to be ascertained and determined by some extraneous factor, such as, the civil law, the higgling of the market, the decrees of a trade union, or the worker’s cost of a decent maintenance.
John XXIII contribution The purpose of this conference is to examine Blessed John XXIII’s encyclical Mater et Magistra (MM). I will leave it to others at this conference to place this great encyclical into its proper place within the CST tradition. While my focus is on his contribution to the idea of a “just wage” there is one theme in the encyclical that I will make to help put my analysis of John XXIII on remuneration of labor in context. One of the great themes of MM is the importance of socialization: Certainly one of the principal characteristics which seem to be typical of our age is an increase in social relationships, in those mutual ties, that is, which grow daily more numerous and which have led to the introduction of many and varied forms of associations in the lives and activities of citizens, and to their acceptance within our legal framework. Scientific and technical progress, greater productive efficiency and a higher standard of living are among the many present-day factors which would seem to have contributed to this trend (MM n. 59). This increase in interdependence through numerous levels of social organizations challenges us to reject the view that social actions and outcomes can be understood solely as the end result self-interested, autonomous individuals. The CST tradition has always fought against the extreme individualistic ideologies that came out of the Reformation and which still dominate economic and social analysis. A social or economic analysis grounded in extreme individualism (and methodological individualism) is contrary to how the Catholic tradition understands the nature and purpose of the human person, but it is also out of touch with the reality of social life. As Jean-Yves Calvez noted: “socialization is in no way due to the blind impulse of natural force. On the contrary, it is … the work of man, a free being; his very nature which incites him to action, by no means relieves him of responsibility for his acts” (Calvez, 1964, p. 9).1 Socialization is particularly important for understanding work, which is the quintessential social activity (working with others at the great workbench as John Paul II put it). John XXIII
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notes that socialization “makes it possible for the individual to exercise many of his personal rights, especially those which we call economic and social and which pertain to the necessities of life, health care, education on a more extensive and improved basis, a more thorough professional training, housing, work, and suitable leisure and recreation. (MM n. 61) as well as promoting social insurance and systems of social security. Socialization is a fact of life in a modern economy. It is up to humans to create institutions that help guide socialization in directions that promote human flourishing and do not take away human dignity. Socialization can be good or bad, hence the need for ethics and values in our discussions, but it cannot be done away with. Here the principle of subsidiarity is particularly helpful, for it helps to guide the development of institutions in a way to maximizes human participation. However, the autonomous individuals in perfectly competitive economies in neoclassical economics are a mental fiction, and a misleading one at that, for it is an ideal which cannot ever exist, and instead becomes a blanket excuse for the powerful to take advantage of the weak. John XXIII contribution to the principle of a “just wage” is our main concern here. John XXIII specified criteria for evaluating work which “are binding always and everywhere” however, noting that how one applies these standards must be based on the specific social and historical context. He states that the “remuneration for work cannot be left entirely to unregulated competition” (this rejecting the neoclassical approach), and “neither may it be decided arbitrarily at the will of the more powerful” (a warning to both sides of the class struggle). “Rather”, he continues, “the norms of justice and equity should be strictly observed” (MM n. 71). In determining what is a “just wage,” John XXIII puts forth four consideration: 1. “The contributions of individuals to the economic effort” 2. “the economic state of the enterprise within which they work” 3. “the requirements of the community, especially as regards overall employment” 4. “what concerns the common good of all peoples” (global common good). In John XXIII four factors we see the need to include equity and efficiency as dual goals. Linking work to “contributions of individuals” recognizes the need to link productivity with reward. The second two factors (2 and 3) link wages to the overall common good. This is a more complex issue. Many economists argue that wage moderation, which is allowing wage growth to fall well behind productivity growth, helps to promote growth in employment (this is particularly the case if one sees the marginal product curve as the demand for labor curve). Thus if workers are more productive, and wages remain the same, or go up by less than productivity, then employers should hire more workers, raising employment levels. A PKI view, however, would see the necessity of paying out in wages the increases in productivity of workers so that aggregate demand will grow, thus promoting more employment. The key contribution of John XXIII is that the requirements of justice and the relating of the benefits of economic activity to the common good go beyond market outcomes. In a modern capitalist economy one of the central problems is inadequate aggregate demand, a problem which income inequality contributes greatly too. We live in “demand constrained economies” and not the “supply constrained economy” which classical and neoclassical economists assumed. Our problem is not “how do we produce more?” but is instead “how do we have high enough consumption so that sufficient jobs are created?” So the third ethical criteria, in the context of “demand constrained economies” calls for a more equal distribution of income and higher wage share to promote the social good of high employment. We will return to this issue in Part III.
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In his forth factor John XXIII extends the demands of justice to the common good of the international community. The benefits of economic progress should not be hoarded in one or a few countries, but should be widely shared. This is an economic development issue and beyond the scope of this paper. It is worth noting, however, that there is often a tension between these goals, particularly as one way to maintain high wages is by protecting workers from foreign competition (which could hurt workers in poor countries). Unproductive yet high paying jobs
John XXIII notes that often there are very high paying jobs where the contributions to society are hard to find, or at least are not in proportion to the incomes earned (MM n. 70):
In economically developed countries, relatively unimportant services, and services of doubtful value, frequently carry a disproportionately high rate of remuneration, while the diligent and profitable work of whole classes of honest, hard-working men gets scant reward. Their rate of pay is quite inadequate to meet the basic needs of life. It in no way corresponds to the contribution they make to the good of the community, to the profits of the company for which they work, and to the general national economy.
John XXIII comments are very similar to Thorstein Veblen’s (1901, p. 212; 214-15) comments sixty years earlier: “There is in modern society a considerable range of activities, which are not only normally present, but which constitute the vital core of our economic system; which are not directly concerned with production, but which are nevertheless lucrative. Indeed, the group comprises most of the highly remunerative employments in modern economic life. The gains from these employments must plainly be accounted for on other grounds than their productivity, since they need have no productivity.” Veblen continues: “There is no warrant, in general theory, for claiming that the work of highly paid persons (more particularly that of highly paid business men) is of greater substantial use to the community than that of the less highly paid.” While we see this in “stars” of popular culture (discussed below) I think this is also the case of the high pay to the financial services sector, where not only was their not great positive contributions to the common good, but where there was outright fraud causing considerable harm to the common good. In the USA the financial services sector accounts for up 40% of corporate profits in many years (it averaged 12-15% 30 years ago). Ironically, financialization was supposed to reduce risk, but instead it has brought us an endless series of financial and economic crises. This is much like a weight reduction diet based on high fructose corn syrup.
Part Two. Valuation and Remuneration of Labor in North America: The Evidence
In our analysis of the valuation and remuneration of labor in Canada and the USA we will limit ourselves to the question of real wage trends and wage inequality, with some mention of other work place issues. We concentrate on these two issues because long run increases in standards
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of living are mostly determined by productivity and distribution (especially wage inequality). The determination of real wage trends is a macro question, but it is also influenced by thousands of micro questions, as each labor market will have its own specific factors for why wages are or are not rising in real terms. We will stick to the macro perspective. On average real wage trends should follow overall labor productivity trends. This is the experience from 1940s to 1970s in Canada and USA, and in rich countries in general. We will not go into the wage gaps between males and females, or between different racial or ethnic groups. These too are very important issues, and are part of the issue of justice in pay, but space considerations force us to limit our focus here. We will note, however, that one possible reason for stagnant real wages is the rise of female labor market participation rates (along with the fall in male participation rates), which, given gender differences in pay, could dampen wage increases. The data for the USA shows that both female and male wages have not kept up with productivity trends, though female wage increases have been much greater than male wage increases over past 30 years. The question of the remuneration of labor is fundamental to the well-being of most families in most advanced capitalist economies, and this is particularly the case in the United States and Canada (which have less developed welfare states). In many European countries wages still are the most important source of income, yet the high level of income supports and the universal provision of health care and education provide a level of well-being which is not as dependent on income from work as it is in North America.2 Thus the level of wages (wages as a share of national income) and the distribution of wages will be the primary determinant of the average family’s standard of living. On average 75% of household income comes from wages, and for middle income families it is even higher. Thus when we look at the trends in wages over the past fifty years we are looking at more than the “price of labor.” Furthermore the valuation of labor goes beyond trends in wages, for other factors are part of the life of the worker. Real wage trends Real wages are actual wages adjusted for inflation, the purchasing power of wages paid. In neoclassical economic theory, real wages will be determined by labor productivity, the share of wages in national income (wage share) and by the purchasing power of wages (the terms of trade between labor and other goods). In the long run, growth in real wages has to be supported by growth in labor productivity, unless they are growing via a redistribution of factor incomes. The decline in real wages, or their failure to keep pace with labor productivity would amount to a redistribution away from labor, most likely to capital. I think there is considerable evidence of this happening over the past 30-40 years.3 The measurement of real wages (nominal wages adjusted for inflation), like almost every other economic variable, is fraught with difficulties. First, what we are interested in is the pay or compensation of workers for their labor time. Workers get paid in wages, but many are not hourly, and salary workers hours worked is often not reported (they often work more than 40 hours per week but are compensated with comp time and other benefits which are difficult to
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measure, or not compensated at all). Second, part of worker compensation is in the form of benefits, some of which are measurable and some of which are not. (Do you measure the value of a benefit based on the cost to the employer or to the value to the worker?). The big issue for the USA is health benefits, which is not an issue for Canada (since they have a universal health care system not tied to employment). There are many other benefits (pension contributions, vacation and holidays, sick time, etc). Thirdly, measuring real wages means adjusting for changes in the cost of living, and the measurement of inflation has many of its own issues which are beyond the scope of this paper. Our interest is in changes in real wages over time, and we will assume these issues away. Of particular importance for Canada and the USA has been the rise of benefits as a share of compensation, from 4-5% in the 1960s to around 15% in the 2000s.4 Given these difficulties, and others, many analysts will derive the real wage rather than rely on official statistics. However, this approach is also problematic, especially when they rely on Cobb-Douglas production functions, for many reasons.5 We will report to two main ways of measuring real wages. As it happens, both approaches come to the conclusion that there exists a gap between real wages and productivity growth in Canada and USA. In looking at the valuation and remuneration of work in North America over the past 50 years it is helpful to go back to the beginning of the Post WWII era. After WWII, economic growth was very strong and the institutions of the New Deal in the USA and similar institutions in Canada put labor into a very strong bargaining position, so that both countries experienced strong growth in real wages. This led to the rise of strong and large middle classes in both countries. Looking at Graph 16 below for the USA we see the general trend of stagnant real wages and compensation in the USA. In the early period (1948 to 1973) wages are steadily rising, yet they show much less progress since the early 1970s. The growing gap between real wages and real compensation shows the increasing share of non-wage income in compensation (benefits).7
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In their report “Rising Profit Shares, Falling Wage Shares” Ellen Russell and Mathieu Dufour (2007) present real wage trends that are look remarkably similar to what we see in Graph 1 above for Canada. They note that real per capita output rose 72% from 1975 to 2005, with productivity growing 51%, yet real wages have been stagnant since late 1970s. They also note that had real wages kept the same relationship with productivity from 1995 to 2005 weekly wages would have been $200 higher than they ended up being (ibid, p 8). The Center for the Study of Living Standards estimates real wages for Canada and the USA state that median real hourly wages grew at a compounded annual growth rate of 0.01% in Canada and 0.33% in the USA from 1980 to 2005 (Harrison, 2009, p. 3), hardly the robust rate we find in the 1948-1973 era.
Productivity and Wage Share
As stated above, in the long run real wage growth will be limited to a certain extent by productivity growth. One of the most outstanding characteristics of how worker remuneration has changed over the past 30-40 years has been the separation of real wage growth and productivity gains. The main driver behind the creation of the middle class in Canada and the USA has been the passing on of the benefits of robust productivity growth onto workers in the form of higher real wages (as argued above). This trend stops in the mid-1970s to early 1980s.
Table 1 Productivity growth and real hourly compensation growth, nonfarm sector, 1947-2009
We see this very clearly for the USA in Table 1 which shows productivity and real compensation being closely linked from 1947 to 1979, but then a big compensation/productivity gap emerges. We have used the data reported by the Bureau of Labor Statistics in the USA, using common measures for wages and productivity. The Center for the Study of Living Standards in Canada has extensively investigated the compensation/productivity gap. In Table 2 below we see some of the results of their research. They derive labor productivity and real wages using a Cobb-Douglas production function (a common technique). This is a less direct measure of wages and productivity, but it seeks to capture factors official government statistics miss.
Table 2 Labor Productivity and Real Wages, Canada and USA, 1961-2007
The CSLS studies show that before 1980 there was a close link between real wage and productivity, yet after 1981 a gap emerges. The one exception is the USA 1989-2000, when the product wage grew faster than labor productivity. However, their studies construct two measures for the real wage (“product wage” and “consumption wage”) and the consumption wage for this period is 1.6, slightly under the 1.64 estimate for labor productivity. Looking at the actual data we see that real wages climb considerably at the second half of the 1990s when the economy was growing rapidly, and by 1999 many measures of real wages had reached their previous 1973
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highs. CSLS analysis also shows another changing aspect of the post 1970s period; the decline of wages as a share of national income, which fell from 57% to 53.1% in 2007 for Canada and 64.2% to 61.5% in the USA.
Table 3 Reconciling Gap between Median Real Wages and Labor Productivity
Canada (per cent)
United States (per cent)
Median real hourly wage 0.01 0.33 Labor productivity (real output per hour) 1.27 1.73 Total Gap 1.26 1.40 Contributions to gap Inequality 27.6 45.1 Labor terms of trade 33.3 22.5 Supplementary labor income 27.3 11.7 Labor share of nominal GDP 19.8 16.7 Other measurement issues -7.9 -- Total 100 100 Source: Harrison, 2009, Table 1.
According to CSLS analysis the gap between real wages and productivity for Canada is almost equally shared by increases in wage inequality, decline in terms of trade, rise in supplementary income and to a lesser degree, the share of wages falling in nominal GDP. For the USA almost half of the gap is due to rising wage inequality, with the remaining factors contributing less. Interestingly, only 11.7% is due to the rise of supplementary income (benefits) which you might think would be more due to the rise of health care costs to workers over this time period. In Table 4 we are presented with the data from CSLS analysis comparing the real wage-productivity gap within OECD countries.
Table 4 Labor Productivity and Real Wages, selected OECD, 1970-2006
Country Labor
Productivity* Product Wage*
Nominal Labor Share in GDP
Range Australia 1.67 1.42 51.9-47.6 Canada 1.48 1.31 54.2-51.0 Denmark 2.28 2.36 51.1-52.6 France 3.13 3.08 49.8-51.9 Germany 2.63 2.44 53.0-59.5 Italy 2.07 1.74 46.3-41.1 Japan 3.14 3.66 43.3-51.6 Netherlands 2.40 2.16 54.7-49.2
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Sweden 2.09 1.91 57.7-54.1 UK 2.34 2.15 59.5-55.5 USA 1.67 1.51 60.2-56.8 Un-weighted average** 2.33 2.28 51.2-50.2 Source: Sharpe, Arsenault and Harrison, 2008. *Compound annual growth rate, per cent. ** For 19 countries, many of which are not in chart.
While we see that the fall in wage share and the gap between real wages and productivity are common among OECD countries, we do see that the situation in Canada and the USA is worse (from workers perspective) than the OECD average (where the gap is .05, compared with .17 in Canada and .16 in USA, over three times larger).
Russell and Dufour (2007) note that the fall in the wage share lead to a rise in the share going to profits. We see a similar trend in the 1980s and 1990 in the USA, however, just as it is hard to measure wages it is even harder to measure profits. Within the Classical Political Economy tradition, one of the central issues was the division of the social product between wages, rents and profits. This is sometimes called the “surplus” approach to economic growth which is still carried out by many heterodox traditions. Following the conservation of energy theory and models that inspired many neoclassical economists, the neoclassical approach has no surplus. Measuring the surplus is particularly difficult in a 20th and 21st century economy since it does not all go to “capital”, but instead goes to what John Kenneth Galbraith (1967) called the technostructure, the army of managers and specialists that run large corporations. Much of their incomes is in the form of wages, thus the wage share and average wage data is contaminated by surplus income (this is due also to the fact that the construction of statistics follows theory, and thus since neoclassical economics is the dominant school of economics, no governments try to define and measure the surplus). However, things get much more complicated when we consider that the financial services sector of the economy, whose share of corporate profits in the USA rose from 12% in the 1950 to near 40% in 2000s, pays its top managers and traders millions and in some cases hundreds of millions of dollars in bonuses each year. In fact, these bonuses consume much of the profits of these companies.
Wage Inequality Table 5 show the rise in inequality of wages in the USA. CSLS also argue that wage inequality in Canada has risen considerably. In fact, in both countries it is clear that top wages and incomes have grown significantly over the past 30 years, while middle and low level wages have been stagnant or falling.
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Table 5 Real Hourly Wage for All Workers by Wage Percentile, USA, 1979-2007
10 20 30 40 50 60 70 80 90 95 1979 $7.87 $8.97 $10.53 $12.39 $14.02 $16.26 $19.21 $22.39 $27.38 $33.44 2007 $7.79 $9.45 $11.03 $12.94 $15.11 $17.93 $21.29 $26.27 $35.23 $45.52 1979-2007 % change -1.0% 5.4% 4.7% 4.4% 7.8% 10.3% 10.8% 17.3% 28.7% 36.1% Source: Mishel, Bernstein and Shierholz, 2009, Tables 3.5. During the 1980s there was a considerable debate among neoclassical economists on whether income inequality was rising. At first many argued that it income inequality was not rising, then when the data became too one sided, the debate turn to what was causing this increase. Much of the debate was on either an increase in wage inequality (which can be blamed on skill differences) or on demographic changes. The dominant approach to explaining this new problem was to tie increases in inequality to productivity changes or to some supply and demand factors. In Levy and Murnane’s 48 page survey of this literature, only six paragraphs are on other factors, such as macroeconomic or institutional factors (1992). The neoclassical approach is based on methodological individualism, thus all attempts to explain a phenomenon like income inequality has to, in the final analysis, be based on explanations of changes in individual characteristics.8 The consensus in the 1990s was that rising wage inequality was due to skill differentials (skill-base technical change, or SBTC), often tied to the rise in the importance of computers. Even as late as 2002 Acemoglu “concludes that technological change, or at least a more sophisticated form of endogenous technological change, was the leading explanation for inequality growth in the United States throughout the 1970s, 1980s and 1990s” (Lemieux, 2006). However, other advanced capitalist countries faced similar SBTC and did not experience increases in income or wage inequality. In fact, it is in the English speaking countries where income inequality is highest and where wage inequality seems to have grown the most (we return to inequality later). One important factor in increasing wage inequality is the decline in union density and collective bargaining coverage. Research has shown that unions are particularly important for workers at the middle and lower half of the distribution of wages, and thus with weaker union protection, wages in the middle and at the bottom will stagnate or fall (as we have seen).
Table 6 Union Density, Canada and USA, 1959-2009
Canada USA 1959 33.3 30.0 1975 36.8 22.2 1985 Na 18.0 2000 32.2 13.5 2009 30.8 12.3
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Social Protection
Canada and USA have below average levels of social protection, and as we see in Graph 2 higher levels of social protection are associated with higher levels of wage growth. Social protection expenditures (social insurance, income supports etc) are based on the principle that income is socially created and it also recognizes that all people have to be supported for some time period of their lives (as children, elderly, sick and disabled) when they cannot actively contribute to the market economy. The most important determinant of a society’s level of income, and an individuals level of income, is the social and historical context in which it takes place. Factors like when and where someone is born are critically important for determining their live time incomes. Rich countries are rich because of these factors and not because the people in rich countries are inherently superior than those in poor countries. Furthermore, social protection measures help to establish the “rules of the game” for determining wage rates, the relative bargaining position of workers, and thus allow workers to achieve a more just wage. Without social protection policies employees, and especially employees without any distinct advantages, will have no bargaining position and will be unable to bargain to share the benefits of increased productivity.
The decline in the real value of minimum wage is often listed as a factor in determining wage inequality, and like union density, its effect is on the middle and low income workers. In real
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terms, the minimum wage in the USA is well below its value in the late 1960s. Often the discussion on minimum wage focuses exclusively on those hourly workers who earn minimum wages. In the United States it is often noted that a high percentage of minimum wage workers live in middle class households, often the teenaged and college aged children of middle income parents. Yet minimum wages have an impact of a large contour of wages from the middle downward, thus when the statutory minimum wage is increased many more than just minimum wage workers get an increase.
Lemieux (2006) argues that the rise in importance of pay for performance helps to explain much of the rise in inequality at the top of the income scale and Piketty and Saez (2006) that changes in pay setting social norms in the USA and other English speaking countries helps to explain the rise in inequality at the top, which hasn’t been seen in other countries.
Table 7 CEO Pay in OECD
Country Ration of CEO to worker pay, 2005
Australia 15.6 Belgium 18.0 Canada 23.1 France 22.8 Germany 20.1 Italy 25.9 Japan 10.8 Netherlands 17.8 New Zealand 24.9 Spain 17.2 Sweden 19.2 Switzerland 19.3 UK 31.8 USA 39.0 Source: Mishel et all 2009.
Looking at international comparisons of CEO pay we see that many advanced capitalist economies are able to run efficient companies without such a wide gap between the CEOs and their company’s workers.
Along with the growth in executive pay has been the compensation to other “stars”, such as movie and recording artists and top athletes. Thus we see that the CEO of largest company in America in 1968, General Motors, received 66 times the pay of its typical worker, in 2005 the CEO of America’s largest company, Wal-Mart, received 900 times the compensation as their typical worker (Reich, in Wilkinson and Pickett, 2011, p. vi), we also see that the top baseball
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players today can make $25 million or more ($33 million for Alex Rodriquez) , while their counterparts (if not their superiors) made much less in the 1970s or earlier (Babe Ruth’s 1930 salary of $80,000 is equal to a little over $1 million today, and Willy Mays top salary of $165,000 in 1973 would be equal to $800,000). The minimum salary for baseball players is $414,000 and the average is over $3 million. Major film stars make $20+ million per film (Cary Grant earned $100,000 in the 1940s) and we can give many more examples (Television personalities who are worth over $1 billion dollars). It is often the case that celebrity endorses of products get paid more than all the production workers of those products. The value added by the top pay is attributed to value created by them because the theory we use to measure value added starts with the assumption that pay reflects marginal product. However, even if the market requires that the “stars” get paid such high salaries, it would not hurt efficiency if society taxed these salaries at higher, rather than lower, rates (as is done in most European countries).
The problem of high pay not connected with contributions to the common good is part of a larger problem of wealth capture replacing wealth creation. When wealth creation is linked to actual improvements in social well-being, then the higher incomes serve a purpose; they provide an incentive for risk taking that helps everyone. Yet risk taking is not necessarily connected with high social reward, and much of the high pay in finance does not come because the financial services has improved its ability to serve the needs of industry, but instead comes from speculating in a manner that is worse than gambling (because gamblers only lose their own money). The vast majority of futures contracts (over 70% by some estimates)on money, commodities etc. have nothing to do with any real economic activity and are really just gambling. Furthermore, much “wealth creation” is really redistribution of costs or benefits so that no additions to output take place (Clark and Alford, 2009). Such activities “risks destroying wealth and creating poverty” (CV n. 21).
Globalization
There can be no doubt that globalization is part of the rise in income inequality and stagnation of real wages story (Woods, 1995). An essential component of raising any group’s incomes is the protection of that group from outside competition—this is as true for labor as it is for capital and land. In the post WWII era it was possible to protect workers, especially since what is now called the developing world was nowhere near able to participate meaningfully in the world economy. Advances in technology have made producing almost anywhere in the world a possibility, thus creating a situation where workers in Canada and USA (and other OECD countries) now have to compete with workers in China, India, Brazil, Mexico, etc. However, not every rich country has had an increase in inequality, so globalization cannot be seen as an all-powerful force that cannot be mitigated. Econometric studies have generally concluded that international trade is not a big part of the rise in inequality story, though we would have to admit that quantifying the effects of globalization is a particularly difficult issue. Globalization is much more than international trade, yet trade is all that can be measured.
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Particularly important for the effects of globalization on inequality is the need for Flexible Labor Markets (Standing 1999), which includes: labor costs; adaptability; mobility; work time and scheduling. There is much evidence that the demands of a globalized economy require production which is flexible, in contrast with the mass production economy of the mid 20th Century and its high fixed capital costs, and thus it needs labor and capital to be able to adapt quickly. Capital flexibility is achieved through low barriers to capital flows and by outsourcing fixed capital costs (hiring a factory for a production run rather than owning them). For labor, flexibility has come to mean atypical work schedules and short term contracts, changing workers (moving work from location to location) and using low paid workers to press middle and high level workers to accept lower pay.
Other Work and Family Differences
Finally, in looking at the valuation and remuneration of labor in Canada and the United States over the past 50 years we should also note the differences in working conditions and benefits. In Tables 8 and 9 we see that workers in Canada and USA have less time off than other advanced capitalist countries (in statutory vacation, and holidays) and receive less public support for children (maternity leave and cash support from the government) and thus work more hours per year (103 for Canadians and 169 for Americans) than their OECD counterparts. Here we see that low social protection measures spill over into labor markets, weakening the power of workers to bargain for better pay and working conditions.
Table 8 Work and Family Policies
Statutory paid minimum vacation
(weeks)
Statutory paid public holidays
(days)
Average annual weeks worked
2005
Maternity leave entitlements, (weeks)
2005
Public expenditure on child care support per child in U.S.
dollars, 2003 Canada 2.0 8.0 44.8 15 -- USA 0.0 0.0 46.7 12 $1,803 OECD without USA Average 4.1 6.1 42.6 21 $2,894
Source: Mishel, Bernstein and Shierholz, 2009, tables 8.6 and 8.7.
Table 9 Average Annual Hours Worked, 1979-2006
1979 1989 2000 2006
Change in hours 1979-2006
(percent) Canada 1,832 1,801 1,768 1,738 -5.1 USA 1,834 1,855 1,841 1,804 -1.6 OECD without USA Average 1,821 1,771 1,688 1,635 -10.2 Source: Mishel, Bernstein and Shierholz, 2009, table 8.4.
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Part Three. Remuneration of Labor and the Distribution of Income The founder of modern economics, Adam Smith (1976, p. 96), stated that: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.” His basic argument was that the efficiency benefits from the adoption of a market system need to be widely shared. In fact, one of Smith’s the revolutionary arguments was the claim that the wealth of a nation was the annual production of its labor force and not the sum of its holdings of precious metals (as was often claimed by the Mercantilist writers that preceded him). Smith economic system required that workers share in the benefits of economic progress for both equity and efficiency reasons as Smith noted the connection between rising wages and efficient workers. In this last section we will look at the ethical and efficiency aspects of real wage stagnation in Canada and the United States, particularly its effect on income inequality.
As we stated at the beginning of this paper, the valuation of labor is the most important determinant of the standard of living for the vast majority of the citizens of most countries. Stagnant real wage growth in Canada and the USA have contributed to the overall problem of income inequality in these two countries and this rise in inequality has many negative economic and social effects. The most obvious negative effect is the financial and economic crisis we are currently in. According to the United Nations Expert Group, high and rising inequality was the most important cause of the current economic crisis. Too much money going to the very rich and not enough money going to the poor and middle classes meant that the rich had an excess of money to lend, which caused lenders to look for lower and less credit worthy borrowers to absorb this surplus of lending funds. Furthermore, since the incomes at the bottom and middle of the income distribution had been stagnant, low and middle class families had to dramatically increase their indebtedness to maintain consumption levels. The excess of funds to lend to low quality borrowers help to create a housing bubble, which made it easier for low and middle income families to borrow more money. Thus both the supply and demand factors in this financial bubble can be traced back to high levels of income inequality. Of course other factors, like financial deregulation and unethical banking practices also contributed, but inequality was a necessary condition. Even mainstream economists are starting to recognize the link between high inequality and economic crisis. John Maynard Keynes noted in 1936: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes,” (1936, p. 372) and he argued that inequality was a major contributor to unemployment and the Great Depression. The rise in income inequality is one of the most important ethical issues facing advanced capitalist countries. This is particularly the case when such inequality is coupled with rising productivity. An examination of Table 10 shows that there is considerable variation of the extent
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of inequality and poverty among the advanced capitalist economies. There should be no doubt that all of these countries have the ability to greatly reduce, if not completely eliminate, all forms of material poverty. The issue is one of values. We do see in this table that there is a strong connection between inequality and poverty, but we also note another striking similarity among most countries with the highest levels of poverty and inequality—they speak English. The common denominator is not spoken language, but more likely the inherited legal systems and attitudes from England’s common law tradition, especially the more exclusionary view towards private property.
Table 10 Income Inequality and Poverty Rates, Various Countries, Mid 2000s
Ireland 2004 4.5 16.2 15.8 36.8 United States 2004 5.7 17.3 21.2 24.6 Source: Luxembourg Income Study Furthermore, countries with low poverty rates are those with considerable social protection measures. The USA produces under the average market poverty rate (that is poverty rate before tax and government benefits are included) among OECD countries, yet the other countries do much more to redistribute income than the USA, thus the USA poverty rate is a matter of public policy. The USA knows how to reduce poverty; it just chooses to not reduce it.
Canada and USA
By all measures, Canada and America have become much more unequal societies. In Graph 2 we see how this has been brought about in the USA. In the blue bars we see the effect of productivity increases being passed on to workers, with all income groups sharing in the economic progress of the period, and with the poor benefiting at higher percentage growth rates
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than the rich. In the red bars we see the effects of the change support for workers and the transfer of all the growth to the top income groups. We can also see in Graph 3 that since 1976 the middle and lower class families in Canada have experienced mostly stagnant real incomes, while in the top 20% have experienced considerable gains (but still much less than the rich in the USA). In 2007, the bottom 20% were -.7% below where they were in 1989, while the middle had experienced a modest increase of 9.4%, while the top 20% had a 25.6% increase.
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9
Efficiency issues, cost of inequality
Typically economists look at economic costs and economic benefits, however, many of the cost of inequality are not purely economic and are not easily measured. But that does not mean that there are not costs, or that such costs cannot be demonstrated empirically. In a recent book Richard Wilkinson and Kate Pickett (2011) have done an outstanding job in marshaling the evidence of the social costs of inequality and in explaining the causal links. By making international comparisons, and inter-state comparisons within the USA, they show the strong connection between high inequality and high levels of social pathologies. Thus they show that countries with high inequality levels also have high child poverty, crime, drug abuse rates; and that countries with low inequality also have much lower levels of these social problems and costs. Some of their most compelling evidence comes from comparing outcomes in US states with the level of inequality in each individual state, thus comparing areas with more similar legal and cultural systems than when making international comparisons. Wilkinson and Pickett’s list of social factors made worse by inequality is:
Level of trust Mental illness (including drug and alcohol addiction) Life expectancy and infant mortality Obesity Children’s educational performance Teenage births
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Homicides Imprisonment rates Social mobility
These are all areas that play an important role in promoting or retarding the common good. It is hoped that with the growth in Happiness Studies in economics more attention will be placed on the costs of economic activity and outcomes which are not easily reduced to dollars and cents.
Some Policy Suggestions
The Catholic social thought tradition urges countries to pursue policies that promote greater equality (universal destination of goods) because it recognizes that God is the source of all wealth and the He intended His gift of creation for all and future generations, and not just for the those who are rich today. CST also notes that the creation, distribution and use of wealth has to follow the dictates of justice and it has to be based on prudential judgment, which means when thinking up ways to improve economic outcomes, we have to work within the system we have as much as we can. Radical change always has unintended consequences which, when possible, we should avoid. This has to be keep in the back of our minds when we think of how we can reduce inequality.
Part of the success of middle class families in the post WWII era came from the fact that the workers in rich countries did not have to compete with workers in poor countries. Excluding workers in poor countries, and thus perpetuating their poverty, is not an acceptable strategy for helping middle class workers in rich countries today. Given the tendency of markets to reward the top unless they are regulated to do otherwise, it seems to me that there are three alternatives for helping low and middle income workers in Canada and the USA without hurting workers in poor countries: 1. we can increasingly regulate markets that determine incomes; 2. we can develop new means for dividing up the economic pie so that the end result better produces the economic and social outcomes the common good calls for; or 3. We can develop new forms of economic institutions that have more the profit maximization as their goal, thus promoting at the same time economic and social efficiency with economic and social equity.
1. I think that there is certainly a need to increase regulation in some areas of the economy, especially in finance and the environment. These two sectors seem to have the highest potential externalities, and thus the pursuit of profit at all costs will cause damages that are too expensive for society as a whole to pay. The costs of the Financial Meltdown and Great Recession are considerable, and the benefits of the speculation that produced this crisis went only to the very rich. As Keynes noted: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done” (1936, p. 159). Keynes noted that there is a
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difference between enterprise and speculation and while we might not want to increase the role of the state in directing enterprise, we can certainly use the power of the state to reduce the negative effects of speculation. Too much money is being made by those who produce nothing, engaging in wealth capture rather than wealth creation. Finance is a service industry, like trucking, and it needs to exist to help businesses. Today it is the opposite; businesses exist to serve the needs of finance.
Sensible environmental regulation is needed, as there are too many market failures to allow markets to correctly price natural resources (especially clean air and water). However, many of the proposals for trading carbon rights will just turn the environment over to Wall Street. We can develop ways to include the full costs of production and consumption without turning the future over to speculators. Furthermore, we have seen that part of the reason wages have not kept up with productivity is declining social protection, unions and falling real value of minimum wages. All of these can be reversed without presenting an institutional shock to the economy.
2. If improving the regulation of labor markets is not possible, than one proposal for dividing up the economic pie in a more equitable manner is by instituting a Basic Income Guarantee, which is being promoted in many OECD countries (Clark 2002). A guaranteed minimum income, usually set at the country’s poverty rate, would produce a more equal sharing of the benefits of economic activity, while doing the least to interfere with the price system that promotes efficient economic activity. Such a system can be implemented with marginal tax rates that are currently in use, so they shouldn’t affect incentives. It also replaces existing welfare systems, and thus has the benefit of getting the government out of the regulating the poor business (which is one aspect of most welfare states schemes in capitalist countries. A basic income is recognition of the social nature of production. It takes part of the social output and divides it equally to all citizens, and then allows the market to divide up the rest. Most of the evidence shows that a basic income system would not diminish the efficiency aspects of competitive markets, as the tax and benefit levels are well below those that lead to disincentives to work or invest.
3. The view that the only way to provide goods and services to people is to either use the profit motive or the state shows a limited imagination. The economy exists for people and not the other way around, yet there are many who feel that if the for profit sectors is not providing goods and services then such provision is inefficient by definition (for efficiency is measured by profitability, and we assume that non-profit production is less profitable that for profit). This statement is empirically incorrect, no matter how often it is repeated. If you compare for profit and not for profit/state health care provisioning, the evidence clearly shows that for profit health care provides less coverage, higher costs and less optimal health outcomes. The USA pays twice per capita what other countries pay and it is at the bottom of any list of health outcomes among rich countries. Yet, that does not mean that the state should be the default position. Many goods and services can be provided which value other goals as well as efficient production. These are the alternative business models called for in Caritas in veritate. However, the success of such
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business models requires that space is created for such companies with multiple bottom lines to exist. Credit unions and co-ops are good examples of special regulations that allow non-traditional business models to co-exist with big business, but we should not forget that such alternatives are constantly under the threat of big business that seeks to monopolize markets.
Summing up:
The evidence seems clear. Canadian and US workers have not, on average, received a “just wage” (compensation has not matched productivity). Their pay has been stagnant; they work longer hours and receive less benefit. The exception to this trend is however the top paid workers in Canada and USA, who have outperformed everybody (especially in USA). In fact this rise in wage inequality has been one of the factors in their overall wage stagnation. But I think we also have to conclude that the institutional factors have also played a role in this story, with lower union density and social protection expenditures, workers are more exposed to the competitive forces of a globalized economy than they are in most European countries.10 While all will agree that there are usually costs and benefits to a change in the economy, it is clear that for Canada and USA the costs have been paid by the middle and low paid workers and the benefits have gone to the highly paid workers, as well as to the owners and managers of financial wealth.
Economists argue that these trends are due to economic forces, and it is most likely that some supply and demand shifts are part of this story. Yet, even if the incentives in the labor market are creating greater inequality, this is something that society needs to address. In efficient markets short run differential gains should cause behavioral effects that eliminate these gains. There is no evidence that these shifts in inequality are short term prices which will be competed away in the future. In fact, high inequality only produces higher inequality in the future, as inequality is never a stationary state, but the result of cumulative causation. Furthermore, the not all costs and benefits are included in the economic calculations of individuals, yet these costs are real. The levels of inequality in the USA and Canada are getting dangerously high. From social pathologies to macroeconomic instability and unemployment, inequality is undermining the social order. Even the right-wing reaction to the Obama Administration policies to counter the Great Recession can best be explained as fall in trust due to rising inequality. The arguments against doing more to promote greater equality are not empirically based, but instead derive from ideology and self-interest. Now more than ever we need clear principles to guide economic policy to more just and sustainable society. John XXIII contributions to the Catholic social thought tradition are a good starting point for this necessary public debate on promoting “just wages” in a 21st century economy.
References
Catholic Social Thought Documents:
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RN Rerum Novarum (The Condition of Labor) Leo XIII, 1891. QA Quadragesimo Anno (After Forty Years) Pius XI, 1931. MM Mater et Magistra (Christianity and Social Progress) John XXIII, 1961. GS Gaudium et Spes (Pastorial Constitution of the Church in the Modern World)
Second Vatican Council, 1965. PP Popularum Progressio (On the Development of Peoples) Paul VI, 1967.
LE Laborum Exercens (On Human Work) John Paul II, 1981. SRS Sollicitudo Rei Socialis (On Social Concern) John Paul II, 1987. CA Centesimus Annus (On the Hundredth Anniversary of Rerum Novarum) John
Paul II, 1991. CV Caritas in Veritate (Charity in Truth) Benedict XVI, 2009. EJA Economic Justice for All, US Bishops, 1986.
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Argitis, Georgios and Michopoulou, Stella. 2011. “Are Full Employment and Social Cohesion Possible under Financialization?” Forum for Social Economics, 40 (2):139-155.
Appelbaum, Eileen. 1979. "The Labor Market," in Alfred S. Eichner (ed.), A Guide to Post-Keynesian Economics (Armonk, NY: ME Sharpe, 1979
Calvez, O.P., Jean-Yves. 1964. The Social Thought of John XXIII, translated by George J. M. McKenzie, S.M., (Chicago: Henry Regnery Company).
Clark, Charles M. A. 2010. “Practical Wisdom and Understanding the Economy” Journal of Management Development, Vol. 29, No. 7/8, pp. 678-685.
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-----. 2008. “What Economists can learn from Catholic social thought” Storia Del Pensiero Economico, Nuova serie-Anno V. (n. 1):25-51.
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Clark, John B. 1965 [1899]. The Distribution of Wealth, (New York: Augustus M. Kelly).
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Kaldor, Nicolas. 1955-56. “Alternative Theories of Distribution” Review of Economic Studies, 23 (2):83-100.
Keynes, John Maynard. 1936. The General Theory of Employment Interest and Money. (London: Macmillan).
Keynes, John Neville. 1890. The Scope and Method of Political Economy, (London: Macmillan).
Lemieux, Thomas. 2006. “The Changing Nature of Wage Inequality” NBER Working Paper No. 13523.
Levy F, and RL Murnane. 1992. “U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations”. Journal of Economic Literature 30(3): 1333-81.
Mishel, Lawrence, Bernstein, Jared and Shierholz, Heidi. 2009. The State of Working America, 2008-2009. (Ithaca, NY: ILR).
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Russell, Ellen and Mathieu Dufour. 2007. Rising Profit Shares, Falling Wage Shares. Canadian Centre for Policy Alternatives.
Saez, Emmanuel. 2005. “Top Incomes in the United States and Canada over the Twentieth Century” Journal of the European Economic Association, April-May, 3(2-3):402-411.
Shaikh, Anwar. 1974. “Laws of Production and Laws of Algebra: The Humbug Production Function” The Review of Economics and Statistics, Vol. 56, No. 1 (Feb.):115-120.
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Wilkinson, Richard and Kate Pickett. 2011. The Spirit Level: Why greater equality makes society stronger. (Bloomsbury Press). Woelfel, Brother La Salle, editor. 1961. Catholic Thought in Business and Education, Vol. II, (Austin: St. Edward’s University Press).
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1 It is worth noting that the economic policies that were central to the recent Financial Meltdown and the Great Recession were inspired by the extreme individualism of Ayn Rand (particularly her influence on Alan Greenspan). 2 Canada has universal health coverage, thus health care is not tied to employment. 3 See Clark 1996 for a discussion of the 1980s, and Argitis and Michopoulou 2011) for an overview of recent trends. 4 See Sharpe, Arsenault and Harrison (2008) for a discussion of many of these issues. 5 I am referring to Anwar Shaikh’s famous article (1974) where he shows that Cobb-Douglas Production functions estimates of “marginal products” and “factor shares” are meaningless, in that the results are based on the model and not the data. He shows this by plotting the word HUMBUG into Solow’s growth model and gets the same results. If one assumes “constant returns to scale”, “neutral technological change” and “marginal products equal to factor rewards” then one will always get the same results. 6 Economic Policy Institute analysis of BLS data, http://www.stateofworkingamerica.org/charts/view/186
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7 The rise of benefits in compensation is an important issue in the analysis of the rise or stagnation of real wages. There is no doubt that average real wages have been stagnant in USA and Canada since the mid-1970s, however, if you add benefits, depending on how you measure them, total compensation can be seen to rise. Yet even with the most generous measurement (see Sharpe, Arsenault and Harrison, 2008), it is still clear that real wages do not keep up with productivity growth. 8 See Clark (1996) “Inequality in the 1980s” for a review of this debate. 9 Human Resource and Skills Development Canada, based on Statistics Canada. http://www4.hrsdc.gc.ca/[email protected]?iid=22. 10 “We also find that de-unionization and supply and demand shocks are important factors explaining the rise in wage inequality from 1979 to 1988. In addition, however, we find that the decline in the real value of the minimum wage from 1979 to 1988 explains a substantial proportion of the increase in wage inequality, particularly for women and for others in the lower tail of the wage distribution. We conclude that labor market institutions are as important as supply and demand considerations in explaining changes in the U.S. distribution of wages from 1979 to 1988” (DiNardo, John, Nicole M. Fortin and Thomas Lemieux, 1996, p. 1,039),
