A new word for an old problem

Wages in the US for the common worker have been stagnant for going on forty years. This disenfranchisement did not happen over just the last ten years. It is the culmination of various events and actions and not due solely to one or two causes or solvable by bumper sticker solutions. Yet, we have a new word for a major cause courtesy of the Economic Policy Institute – monopsony.

In essence, monopsony is the sister of monopoly. It is an employer who has so much clout in a region or area, it can suppress wages to its workforce. It can also move jobs away more readily be it through off-shoring, outsourcing, downsizing or relocation. This movement of jobs adds to an employer’s ability to manage wage increases. In essence, the word monopsony highlights the goal and ability of employers to chase cheap labor.

Per the EPI, much of the wage stagnation after 1970 has occurred at the low-end of the wage spectrum. An economist noted on a talk show to get an idea of what has happened, stand up and put both arms out in front of you parallel to the ground. The left one represents the bottom 90% and the right one the top 10%. Move the left one up at an angle by one inch, then move the right one up by twenty inches. That disparity illustrates what has transpired over these forty years in wage differential.

I have written before the efforts by the current President to create fear of immigration and trade deficits as the reasons for disenfranchisement in various areas over look the main two drivers – chasing cheap labor and technology improvements. Immigration is actually accretive to the economy, even illegal immigration as there are many jobs that Americans have said they don’t want.

But, if the President wants to solve an illegal immigration problem, he should begin with punishing employers who hire these workers. I have noted before about a textile company who went bankrupt and closed its doors. When career counseling people said in an auditorium full of workers that you had to have a Social Security Number to get access to benefits, 1/3 of the audience got up and left. The construction, agricultural and restaurant industries would have severe issues if these immigration wells dried up.

Yet, the two main drivers of wage stagnation and good paying jobs do not get talked about – chasing cheap labor and technology gains. An unnamed CFO said in the book “The Rich and the Rest of Us,” an employer would get by with no employees if it could. So, robotic machinery has been displacing workers for many years. And, now it is becoming even more efficient and affordable. We do much more manufacturing in the US today than in 1980, but with much fewer workers.

Yet, with these tools and possible actions available to an employer who has a monopsony in an area, good paying jobs are fewer in number. Mind you, high-tech manufacturing and similar jobs exist, but they are not in the same number with so much competition for wages. I make this last point as the disenfranchisement is real and not made up. To his credit, Trump went out and visited these areas. But, what they did not realize, he was selling on fear, over-simplifying the causes and highlighting the wrong major ones.

The disenfranchisement in the western world has a visual called the “elephant curve,” with a side view of an elephant with his trunk raised. The body of elephant is wage growth for the emerging and burgeoning international markets. The raised trunk reveals the rapid wage growth for the top 10% in the western world. The trough between the raised trunk and body, reveals the stagnation in wages in the western world.

So, immigration and global trade have an impact, but the key drivers are chasing cheap labor and technology. And, the last one will grow even faster than before. Yet, chasing cheap labor will continue to be a driver as well. It is the culmination of pounding on unions to weaken their voice. It is the active fight to keep minimum wages down over time. It is making tax changes dating back to the 1980s (and last December) that are more advantageous to the top 10%, giving them a chance to invest in technology and places to house cheaper labor. It is threatening to move jobs to gain wage limits.

Since the housing recession in 2008 and early 2009, we have seen unemployment decline and stay down. Wages have gone up some, but not near enough to track other increases in costs. We need to be discussing retraining impacted workers building off some success stories around the country. We need to renovate and repurpose deteriorated assets to create new jobs. We need to invest more in our infrastructure and jobs of the future. We need to stabilize the ability for employees, whose hours are limited, to get affordable healthcare, since employers hire more part-time and contractual employees to restrict them from joining their healthcare plans.

The disenfranchised employees and areas need a real voice who will speak to real causes, not over-stated ones. Monopsony is a hard word to say and is a hard word on these people. They deserve better than what they have been hearing.

 

 

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11 thoughts on “A new word for an old problem

  1. A thoughtful read Keith, concentrating on our infrastructure would be a step in the right direction for many reasons that you so eloquently detail ( none the least that it is falling down around us).

    • Thanks Holly. Not addressing our infrastructure in a major way will be one of the worst oversights in legislation. The need is obvious and delay repairs has and will kill people. Interest rates have been low for years. And, construction jobs pay better than many other jobs. This is one issue was advocated by the US Chamber of Commerce and AFL/CIO. Yet, nothing was done.

      You watch when the next train derails or bridge collapses, Congress will be up in arms saying how could you let this happen? They are the ones who let this happen. Keith

  2. Note to Readers: As I mentioned this is a new word for an old problem. America is filled with small communities that are/were beholden to a large area employer. Going against the company was difficult, even when unionization efforts were made. The constant threat was to tell the organizers in subtle ways that these jobs could easily go away. Some textile companies even had mill houses, so the employees were beholden to the employer and landlord.

  3. My father-in-law used to talk of living in company housing, shopping at the company store, and, as the old Johnny Cash song goes, he “owed his soul to the company store”. He was one of the few lucky ones to get out of coal mining, earn a degree in Engineering and a job with BOAC, but most were not so lucky. The early days of monopsony, I suppose. The had the workers by the proverbial short hairs.

    And in the area of technology replacing human labour, I have a funny story. As you may remember, I worked for Honda in Marysville, Ohio, outside of Columbus for a few years. This was in the late 80s, early 90s, when robotics was to be the wave of the future, but they hadn’t quite gotten the bugs out yet. So, there was one small process on the assembly line that Honda decided to invest in robotics to do what it took one human to do. The robotic performed the process perfectly … some of the time. But, as an entire assembly line can be shut down over a small error, they finally decided to have two employees watch over the ‘robot’ at all times to catch any errors before they caused a shutdown of the line. Two workers to monitor a robot, when the job only required one worker before! Oh the irony!

    But on a more serious note, the income disparity in this nation is a serious problem and is a part of what led to the election of Donald Trump, who said he was for the workers, for the ‘common’ people. He isn’t, but those who look to him for solutions, for hope, are slow to see that he offers none.

    • Jill, great stories. In computer vernacular, an elegant solution, is the one that is simplest and least costly for the repetitive task at hand. Replacing one person with a robot and two people is “inelegant.” As for the common man, using a quote by an energy consultant about one industry, “Trump is for coal owners, not coal miners.” Keith

      • PS – You reminded me of the time when a private investor bought a huge textile company. Unbeknownst to them, he ceased company owned housing and sold the real estate. To make it worse, he terminated the pension plan, bought annuities and collected the surplus assets. Employees lost their housing, lost their future pension growth, and wages continued to be suppressed.

      • An elegant solution is, then, rather like Occam’s razor? Yes, Trump is for those who have the money … he is not the president of the people, and our government can no longer be said to be, “Of the people, by the people, and for the people”, for it certainly is not. Sigh.

      • Jill, similar, but not the same. Here is an example. Is it more elegant to spend one hour programming a computer (or robot) to do something one time that would take a human to do in 5 minutes, presuming the quality is similar. The answer is obvious. Yet, the elegance changes when the activity is repetitive.

        Occam’s Razor notes the simplest explanation is often the correct one. Here is a good example. What is more believable, the President tends to lie more than he does not or their is a fake news conspiracy that is out to get him? The fact all five of his biographers say the man has a problem with the truth should be a factor.

        Keith

  4. Dear Keith,

    Thanks for this post. as it is spot on.

    I use frequently use the EPI as a resource and I love the word monopsony. which highlights the goal and ability of employers to chase cheap labor or the bottom line by keeping wages low and by doing away with benefits, like a secure pension.

    I don’t think that the formation of ALEC by corporate titans and John Birch Society type conservatives in 1973, came on the scene just when corporations started changing the ways they shared the spoils with workers.

    As per the EPI, from WWII to 1973, US corporate productivity increased by over 94% while the workers’ pay increased by 91%. From 1973-now, corporate productivity increased by 77% but workers’ pay only increased by less than 13%.

    As per Senator Sheldon Whitehouse, the democrats have to do a better job in educating the public about the real reasons hard working Americans feel so financially squeezed.

    This is important because totalitarian figures like President Trump will step into this breech to sell hate, fear against whoever they can blame like immigrants. Hence the name of scapegoat comes into play.

    Hugs, Gronda

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