Tag Archives: socio-economic review

The battle of institutions vs. technology = rising wage inequality

Summary: Although denied for years, by now rising inequality is acknowledge even by conservatives — so the debate shifts to its causes and remedies. The “standard” answer points to the “invisible hand” of “market forces”. New cutting edge research shows that this defense, much like the earlier denials, does not match the facts. This post excerpts from a important new paper by Tali Kristal and Yinon Cohen in Socio-Economic Review.We cannot fix what we do not understand.

Scales of Income Inequality

The causes of rising wage inequality:
the race between institutions and technology

Tali Kristal and Yinon Cohen, Socio-Economic Review, in press
Excerpt posted with the authors’ generous permission

Abstract

Many inequality scholars view skill-biased technological change — the computerization of workplaces that favours high-skilled workers — as the main cause of rising wage inequality in America, while institutional factors are generally relegated to a secondary role.

The evidence presented in this article, however, does not support this widely held view. Using direct measures for computers and pay-setting institutions at the industry level, this article provides the first rigorous analysis of the independent effect of technological and institutional factors on rising wage inequality.

Analysing data on 43 US industries between 1968 and 2012, we find that declining unions and the fall in the real value of the minimum wage explain about half of rising inequality, while computerization explains about one-quarter. This suggests that much of rising inequality in the USA is driven by worker disempowerment rather than by market forces — a finding that can resolve the puzzle on the diverging inequality trends in USA and Europe.
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Sociologist Wolfgang Streeck asks if Capitalism has a future

Summary: The pace of change has accelerated since Y2k so that it’s difficult to see what’s happening. Here’s a provocative essay by sociologist Wolfgang Streeck describing an evolution almost too large for us to see as it happens — the decline of capitalism (and, though he does not discuss this, its evolution into something else).

Evolution

Thou know’st ’tis common;
all that lives must die,
Passing through nature to eternity.

— Queen Gertrude to Hamlet in Act I, scene 2.

Excerpt from “On the dismal future of capitalism

By Wolfgang Streeck
Socio-Economic Review, January 2016

The writing is on the wall, and has been for some time; we must only learn to read it. The message is: capitalism is a historical social formation; it has not just a beginning but also an end. Three trends have run in parallel since the 1970s, throughout the family of rich capitalist democracies: declining growth, rising inequality of income and wealth and rising debt — public, private and total. Today the three seem to have become mutually reinforcing: low growth contributes to inequality by intensifying distributional conflict; inequality dampens growth by curbing effective demand; high levels of existing debt clog credit markets and increase the risk of financial crises; an overgrown financial sector both results from and adds to economic inequality etc.

Already the last growth cycle before 2008 was more fake than real and post-2008 recovery remains anaemic at best, also because Keynesian stimulus, monetary or fiscal, fails to work in the face of unprecedented amounts of accumulated debt.

Note that we are talking about long-term trends, not just a momentary unfortunate coincidence, and indeed about global trends, affecting the capitalist system as a whole and as such. Nothing is in sight that seems only nearly powerful enough to break the three trends, deeply engrained and densely intertwined as they have become.

… State-administered capitalism has failed — that is, was rejected by the owners of capital as too costly for them, to be replaced with free-market capitalism, which has also failed. For the time being, central banks act as regents waiting for a new ruler. But who would this be, and what would be his recipe for holding the capitalist enterprise together?

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