This is a long-form response of sorts to Slinkerwink's excellent diary here. In it, is a reference to a just as excellent report done by the EPI on how the proposed Excise tax probably will not result in wage increases to off-set the switchover to cheaper health care plans by employers.
While it's a good recognition that this is the case, what should be fleshed out a bit, is WHY that is the case. To put it short, the commonly used labor model...from progressives to conservatives....is wrong. It's upside down, and it understands little about the reality of work and employment.
And yes, we progressives can be just as guilty as the far-right wing of promoting these models.
The money quote...
Clearly, this "health care theory of wage determination" is wrong, and other factors explain these overall wage trends.The simple explanation is that productivity accelerated in the mid-1990s, and the low unemployment (and hikes in the minimum wage) facilitated faster wage growth. That this wage growth disappeared entirely in the 2002-07 recovery is not due to faster health care cost increases but to weak employment growth and employers’ ability to achieve increased profitability rather than pass on productivity gains to workers. This reveals a fundamental flaw in our economy: productivity gains are not passed on to higher living standards for workers.
This truly is the fundamental flaw in the economy at large. But without big, massive changes, this is a problem that may be very difficult....or impossible to fix.
The common model that most people follow when they're not trying to make a political point, is that wages are tied into the value that you add to a business/organization. If you add more value, you'll get more money. This is the wrong way to look at it.
Here's how it works in most organizations:
My business has X units of work that needs to be done. I want to hire enough employees (Y) to make sure that X units of work get done, and as little extra as I can get away with. Thusly, there are plenty of people out there looking for work, and I can offer lower wages with the idea that someone is needing the job enough that they'll take it.
That is the problem. High unemployment (more accurately, low employment), ensures that workers are forced to bid against each other, lowering wages/limiting wage growth over time.
There's also a "Z" factor. Z is the actual real productivity of each worker. Of course, if wages go over Z, it makes little sense to operate the business anymore. Which is why the conservative strawman of "Why don't you set the minimum wage at 100 dollars an hour", is so stupid. While there's a grain of truth in it, anybody who thinks that the economy at large is anywhere close to Z needs their head examined.
What about lowering wages/raising prices to maintain profit levels?
The only reason they can do this, is because the markets allow them to. It's because people actually value the product (or they don't have a choice..a much bigger problem) more than they are paying. Or, as above, wages can be dropped because people are basically forced to work those jobs.
Profits are NOT sacrosanct. In fact, in a properly balanced economy, businesses should be fighting tooth and nail for their profit.
What about education?
This is where, in my opinion, progressives get suckered in to this model, which makes it hard to break. Make no mistake, I'm a fan of education on a social basis, as well as for class mobility (although that's harder and harder these days...). However, it is NO big fix for the economic woes. While there's an arbitrary (yes, it is arbitrary) starting point for wages..remember that it's simply market value. Increasing the number of people trained in a given profession does little to change the value of X. It simply increases Y, increasing competition, and yes over time lowering wages.
Arbitrary?
Yeah, I said it. The market has no firm clue of what the "actual" value of most jobs are. We just have these assumed traditions, that are continued on by one aspect of our culture (the financial/management class), and we have a perceived value, that is a bit deeper rooted in our culture.
But as tech workers are learning, the financial/management class sees breaking down these perceived values as a way of extracting more profit out of an organization. There's actually no reason why most fields are immune to this. Relying on "tradition" is probably a fool's game in the long run.
So what's the solution?
Same thing as it's ALWAYS been. You increase X, or you lower Y. Simple as that. Usually, we increase X, but usually it's done by accident, or it's essential. The build-up post WWII, the tech boom, etc. The tech boom is particularly interesting, in that it was kind of a fraud, that got a lot of money out of the hands of the finance sector, back into the real economy. Even though a lot of those businesses didn't make it, it did wonders for the economy at large.
The biggest and best possibility of this, is of course the movement into green technology. The building of a new green infrastructure will drastically increase X, increasing competition in the other direction, from business towards workers, increasing wages. However, as I suspect that once the infrastructure is built, we'll see equally significant productivity increases, lowering X in the long-term.
(We need it for other reasons, of course, so we'll have to eat this, but it's still worth acknowledging)
So maybe we need to look at lowering Y. Be it a shortening of the workweek, early retirement (I'd especially like to see an earlier retirement for more physical jobs paid for by removing the cap on SS taxes.), furloughs, or just making it easier for single-wage households (and no, I don't mean the man works and the woman stays home. I'm more thinking of an alternating cycle of work and personal growth, education, non-profit work, whatever).
But something HAS to be done. This is the problem. And these are the solutions. We need a 21st century economy, and the first step to getting there is rethinking our traditions and biases towards work.