[OPE-L:4809] Re: the determination of real wages

Gerald Levy (glevy@pratt.edu)
Fri, 18 Apr 1997 06:06:10 -0700 (PDT)

[ show plain text ]

In [OPE-L:4804], Patrick gave what he believes to be a capsule description
of the US economy since 1973:

> The money wage rate will adjust to a given consumption bundle, as along as
> the relative power of workers and capital is unchanged and productivity is
> unchanged. But, let's say capital increases its power relative to the
> working class (with unchanged productivity, i.e., zero or very low
> productivity growth).

OK, but a further analysis of this subject will require a discussion of
the state-form since state policies were a means by which capital was able
to increase its strength vis-a-vis the working class (e.g. Reagan's
breaking of the PATCO strike set in motion the concessions movement of the
1980's in the US).

[Digression regarding productivity: you may be right that "productivity"
was relatively constant during the post-1973 period in the US -- but a lot
depends on how you define productivity. For instance, if we say that
increasing intensity of work increases productivity, then one could go on
to extend the argument that the same increase in the relative power of
capital that allowed them to decrease nominal wages (and benefits) also
allowed them to increase the intensity of work and productivity. One could
also argue that the savings generated by concessions (in wages, benefits,
etc.) helped to fuel increased investment in process technologies that
made possible an increase in relative surplus value that then allowed US
firms to experience increased "competitiveness" on world markets. On the
other hand, the form in which this technological change in industry took
place was much different from expected. I.e. frequently *instead of*
heavy investment (and borrowing) on new plants and equipment for flexible
automation, firms *instead* restructured their relationship with suppliers
with "flexible production" (i.e. just-in-time, or "kanban", production).
In addition to the savings generated by a decrease in inventory and
related costs, another advantage of this strategy from the perspective of
the large corporations who produce final goods and services is that they
were able to effectively *shift* this cost of restructuring to *other*
firms (i.e. small suppliers) and, thereby, decrease their need for
borrowing. On the other hand, an alternative supplier strategy to
"flexible production" practised by many corporations was "outsourcing" to
take advantage of lower wages, benefits, lack of environmental
regulations, etc. in other countries].

> Then, capital will notice that it can offer money wage
> increases that are lower than the rate of inflation. If capital's increase
> in power is great enough and lasts long enough then worker's can be forced
> to take wage cuts. (Aside: inflation can occur with zero productivity growth
> and declining nominal wages if there has been a rather substantial increase
> in the price of non-labor inputs).


> Anyway, as money wages decline the real
> wage bundle will be forced downward also. Workers will try to resist this
> reduction in their standard of living by leveraging their non-labor assets,
> i.e., carrying larger home mortgages and stretching out car payments over a
> longer period of time or cutting back on anticipated pension plan
> contributions. But this increasing burden of household debt makes labor even
> less resistant to the dominance of capital. And, so, money wages continue to
> tumble. Workers, losing the battle at the site of production, take on even
> heavier debt loads or make even greater reductions in pension plan
> contributions. Of course, worker debt can only hold off reductions in the
> consumption bundle for so long. As household bankruptcy (sp?) mounts,
> workers standard of living decline and they adjust their standard of living
> to the lower money wage rate.

I think that the experience of that period was (or should have been) a
wake-up call for those radicals who *assumed* that if large segments of
the organized industrial working class were attacked by capital, then
that would cause large-scale workers' resistance and class confrontation.
What they forgot was really something quite simple -- when workers (or
other classes or groups) are attacked, they can fight-back collectively
*or not*. What happened in the event was that unions, for the most part,
accepted the "concessions" rather than fight back. Certainly the trade
union "leadership" had a major impact on this process, although, many
rank-and-file union members also bought into the "competitiveness"
argument ("we're all in the same boat together") argument. I also think
that the nationalism of the US working class made it easier for them to
accept these concessions since they came to believe that the crisis was
caused by *foreign* competition and that they, therefore, had a
commonality of interests with their own capitalists against international
competition (and, relatedly, against "illegal aliens", i.e. undocumented
workers). Certainly, the lack of international trade union solidarity
helped to reinforce this perception.

Since an effective *collective* response to the wage (and benefit)
reductions was not forthcoming, this meant that workers had to respond
*individually* to attacks on their "customary and moral" standards of
living -- in the ways you describe above.

A few caveats, though:

1) a significant percentage of US workers do not have any pension plan.
Indeed, during the 1980's we saw a big increase in individual retirement
accounts (IRAs), rather than pension plans paid by employers. In large
part, this trend was fueled by the state which offered to make these
monies tax-exempt.

2) Moreover, part of the concession movement called for a reduction in the
"employers share" in pension plans and other benefits. Thus, workers were
in many cases forced into decreasing their standards of living in order to
maintain their pension plans, health benefits, etc. (Also, both
corporations and the state raided workers' pension funds, with the support
of trade union "leaders", to deal with corporate or state debt).

3) The decrease in interest rates offered by banks in the late 1980's
meant that for those workers who derived a substantial part of their
income from savings, they experienced decreased income or were forced into
more risky personal investment (e.g. in stocks).

4) One of the things we saw during this period was an explosion in credit
card consumer debt. The increasing availabilty of credit cards and the
extraordinarily high interest rates charged by credit card companies and
banks who issue credit cards then further increased indebtedness. As
workers without significant savings financed their expenditures
increasingly through credit card purchases, their debt increased and,
thereby, a larger percentage of their income had to ... eventually ... be
allocated for interest payments. In that sense, one could claim that the
reduction in workers real income represented, in part, a transfer of
wealth from workers to bank capital.

> I think I've described the post-1973 US economy. Disagreements?

With the qualifications listed above, I for the most part agree.

In solidarity, Jerry