mnot’s blog

Design depends largely on constraints.” — Charles Eames

Sunday, 26 March 2006

Workers of the World, Untie

Filed under: Australia Economics Politics

A few snippets from the day;

1) The Wall Street Journal reports on the divergence between productivity and wages;

Since the end of 2000, gross domestic product per person in the U.S. has expanded 8.4%, adjusted for inflation, but the average weekly wage has edged down 0.3%… Since the end of the recession of 2001, a lot of the growth in GDP per person — that is, productivity — has gone to profits, not wages. This reflects workers’ lack of bargaining power in the face of high unemployment and companies’ use of cost-cutting technology. Since 2000, labor’s share of GDP, or the total value of goods and services produced in the nation, has fallen to 57% from 58% while profits’ share has risen to almost 9% from 6%, large swings by historical standards.

2) The New York Times questions one of the more relied-upon assurances of outsourcing and free trade advocates — that people can learn new skills and re-enter the workforce at the same quality of life.

The presumption — promoted by economists, educators, business executives and nearly all of the nation’s political leaders, Democrats and Republicans alike — holds that in America’s vibrant and flexible economy there is work, at good pay, for the educated and skilled. The unemployed need only to get themselves educated and skilled and the work will materialize. Education and training create the jobs, according to this way of thinking. Or, put another way, an appropriate job at decent pay materializes for every trained or educated worker.

3) Australia implements Howard’s new Industrial Relations reforms, taking away many cherished and long-lived rights from the Australian worker, including protection against unfair dismissal, and many collective bargaining rights — including some that America and Britain retain.

Making Sense (and Taking Unfair Advantage) Of Rapid Economic Change

I actually don’t think that outsourcing and offshoring are necessarily bad; economists will tell you that free trade, for example, will benefit the world’s poor to some degree, and there’s a kernel of truth to that. I do think that the pendulum has gone too far in many ways, especially involving executive compensation and investor returns.

Sumantra Ghoshal put forth that employees take a much larger risk than investors. Executives seemingly take no risk at all (except perhaps that of getting caught with their hands in the till). An employee’s compensation is not just their salary, 401k and vacation time; it’s the stability of work and a known future. Otherwise, we’d all be contractors, right?

That’s the direction we’re going in, of course; any stability in employment in the US (and now in AU) is illusory. What worries me about Australia’s changes is that while the old system was definitely too cozy for some, the new one seems tailor-made to get rid of collective bargaining. That’s going to make a lot of people feel unhappy and insecure, and I think Australia’s culture as a whole — something which is unique in the world, IMO — suffer. All just to keep Howard’s streak going.

Who Do We Work For, Part II

In the end, there is no “right” answer to these questions, despite what the economic rationalists and free trade bashers will tell you. Economics is a tool for shaping your society, and used correctly, it can have a direct impact. The relevant question is, what shared values do you have regarding what that society should look like?

There’s an old behavioural economics parlour trick, where you ask somebody if they’d rather a) make $70,000, while their neighbours make $60,000, or b) make $80,000, while their neighbours make $90,000. I’m apparently in the minority, because I’d prefer (b). Not only would I be making more in absolute terms, but I’d be surrounded by happier neighbours. I’d rather walk down a street with a few dollars in my pocket, passing my neighbors who are well-educated and productive, rather than driving my luxury car and dodging the unemployed and desparate. YMMV.


1 Comment

James Antill said:

”"”There’s an old behavioural economics parlour trick, where you ask somebody if they’d rather a) make $70,000, while their neighbours make $60,000, or b) make $80,000, while their neighbours make $90,000.”””

Unless the original question is very differently worded, this doesn’t seem like a very good trick. I doubt I’d assume the question meant “would you like to be paid $70,000 or $80,000” and I doubt most people parse it that way, people want a reason for the information about the “neighbours” to be there.

My first instinct would probably be to ask wtf the question really was, if that wasn’t allowed I’d probably assume it’s it’s asking something like “would you prefer X when the mean pay is X-10 or Y when the mean pay is Y+10, where Y is bigger than X”. So we’d come up with different answer to the above, but given a clear question of either interpretation I assume we’d both answer the same way.

Monday, March 27 2006 at 12:18 PM

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