Seven years ago, Thomas Piketty’s Capital in the Twenty-First Century landed on coffee tables across the English-speaking world. With his proclamations about the rise of the rentier class, newfound attention was devoted to the divergent incomes of laborers and capitalists. Google trends data confirms the post-2008 surge in focus upon terms like
This way of looking at economics is amazing. This stuff should directly go into graduate level texts in universities. A simplified content would make a lot of sense to school children getting introduced to economics.
This was excellent overall but I don't see how the "productivity monitoring" thesis leads to lower labor share (which is a function of average, not median, wages)?
The stylized facts as I understand it are:
- a firm has 100 workers, 10 worth $90/hr and 90 worth $10/hr, and it makes $3000/hr
- in 1990 they can't tell who's who, so they have to pay everyone the blended wage ($18/hr) for a 60% labor share
- in 2010 they now know exactly how much everyone is worth, so they pay the stars $90/hr and everyone else $10/hr. median wages go down to $10/hr (and inequality rises), but total wages and therefore the labor share are still constant!
what is this model missing from the productivity monitoring theory? you might say that in 1990 the high-earning workers know their own productivity and get frustrated and go elsewhere, but if no other employers can measure their productivity either then it doesn't matter.
maybe you could construct a scenario where those workers go off and do something else (e.g. self-employment), but wages are sticky so the remaining (low-quality) worker pool captures a greater share of the pie; whereas today everyone gets what they're worth. but that looks like a world where entrepreneurship and worker mobility are lower today than in the pre-2001 era, which I don't think fits the facts.
This way of looking at economics is amazing. This stuff should directly go into graduate level texts in universities. A simplified content would make a lot of sense to school children getting introduced to economics.
This was excellent overall but I don't see how the "productivity monitoring" thesis leads to lower labor share (which is a function of average, not median, wages)?
The stylized facts as I understand it are:
- a firm has 100 workers, 10 worth $90/hr and 90 worth $10/hr, and it makes $3000/hr
- in 1990 they can't tell who's who, so they have to pay everyone the blended wage ($18/hr) for a 60% labor share
- in 2010 they now know exactly how much everyone is worth, so they pay the stars $90/hr and everyone else $10/hr. median wages go down to $10/hr (and inequality rises), but total wages and therefore the labor share are still constant!
what is this model missing from the productivity monitoring theory? you might say that in 1990 the high-earning workers know their own productivity and get frustrated and go elsewhere, but if no other employers can measure their productivity either then it doesn't matter.
maybe you could construct a scenario where those workers go off and do something else (e.g. self-employment), but wages are sticky so the remaining (low-quality) worker pool captures a greater share of the pie; whereas today everyone gets what they're worth. but that looks like a world where entrepreneurship and worker mobility are lower today than in the pre-2001 era, which I don't think fits the facts.
I'm sure my simple model is missing something?
Thank you for writing this informative and stimulating analysis.