Crowdsourcing works!

In the comments to my last post, reader Peter Schaeffer provides exactly what I asked for: a breakdown of the discrepancy between 30 per cent growth in US household income over the last 40 years and 117 per cent growth in income per person. In addition to the factors I’d mentioned (falling household size and growing inequality) Schaeffer notes two more: the fact that GDP has grown faster than national income and the fact that prices faced by households (the CPI-U-RS) have risen faster than the GDP deflator. He provides the details to show that this fully explains the discrepancy.

What should we make of this. As far as the situation of the average American is concerned, the only correction we need to make to the household income figures is to correct for changes in household size. That makes the increase over the last 40 years about 63 per cent, or an annual growth rate of 1.2 per cent. By contrast, the 117 per cent growth in GDP per person implies a rate of just under 2.0 per cent. So, changes in GDP per person (let alone changes in total GDP) are essentially irrelevant as a guide to how the average household is doing.

And of course, the poor have done much worse. Household incomes for the bottom quintile have barely moved for decades. Growth in consumption has been driven largely by increasing access to debt, a process that now looks to have run out of road. That would seem to indicate a looming social crisis. But the coming election will still turn on whether Obama called Palin a pig.

34 thoughts on “Crowdsourcing works!

  1. TerjeP,
    The “labor suppliers” who are kept out of the market by a lower labor prices here are AMERICAN born workers who will not show up for $5.15/hr — only to be replaced by Mexicans who are ecstatic not be earning $1/day (what an American company recently moved to Mexico pays its workers to make washing machines). Imagine if Australia had a thousand mile land border with China — not very well guarded (immigration never arousing much excitement in the land of all immigrants: America) — one way you could keep labor’s price up for Australian workers might be a high minimum wage. Assuming your economy had a minimum wage it would certainly have to be kept high under the gun of tens of millions of illegal immigrants.

    FOR WHICH NEW MINIMUM WAGE ARGUMENT I HAVE YOU TO THANK, TerjeP. Which is a big reason I always cross swords with you trolls — whole new arguments pop up. :-)-

  2. “If the consumers of labour are able to pay more for labour and they actually want more labour then why would they continue to pay a price so low that it causes labour suppliers to stay out of the market?”

    Because if they increased the wages on offer to attract additional staff, they’d have to pay the same higher wage to their existing staff.

    Outut would increase but their profits would go down.

    Also, you are assuming that employers make decisiosn rationally – in point of fact there’s a huge amount of evidence that humans don’t make economic decisions rationally. For starters, we know that people value potential losses and gains differently and are irrationally risk-averse.

    In my own industry, I pay well above average wages. The result is that I attract and retain better staff and my busienss is much more profitable than my direct competirors as a result.

    My competitors know this, they complain regularly about the difficulty of finding and keeping good staff (I turn away job applicants daily and haven’t had an employee quit in about 10 years.) Somehow, thr idea of matching my wages and conditions never seems to occur to my competitors.

  3. Also, you are assuming that employers make decisiosn rationally

    Actually it would seem that you are when you say:-

    Because if they increased the wages on offer to attract additional staff, they’d have to pay the same higher wage to their existing staff.

    You seem to be assuming that industries are made up of large singular players rather than a diversity of competing players many of whom are attempting to achieve greater scale and who will sacrifice profits in the interum. I suspect that few industries match your implicit assumption.

    I’d also suggest that your experience in business (ie paying people more to get better outcomes) is typical of most employers. Driving down costs rarely involves paying the lowest wages possible. However I’d prefer to leave a marchet niche in which those people with skills or attitudes that don’t make them worth much to employers were still able to be profitably employed by somebody.

  4. The “labor suppliers� who are kept out of the market by a lower labor prices here are AMERICAN born workers who will not show up for $5.15/hr — only to be replaced by Mexicans who are ecstatic not be earning $1/day (what an American company recently moved to Mexico pays its workers to make washing machines).

    Your example is a case of employers discriminating in favour of Mexicans on the basis of price. If the price advantage is removed then typically ethnic minorities and foreigners (such as Mexicans in America) are usually the ones that suffer the most unemployment as well as the associated social exclusion. As such I agree that those from the social and ethnic mainstream may benefit from some wage regulations however it would come at a cost to the more hard up ethnic minorities. Such a policy is not my cup of tea.

  5. TerjeP,
    I am sure that just like every Karl Markets who endlessly defends the low paid worker against the dangers of a precipitous raise in pay imposed by government, you too must have a sincere heart. After all, when buying and selling replaced the lord of the castle’s commands as the director of economic life, how could such medieval people imagine that all the history of unjust attempts of men to eat other mens’ lunches would all end in a stroke — if the government will only not interfere with the automatic social perfecting process of, er, uh, buying and selling.

  6. Who is mocking? Just because the (imperial, medieval) government is no longer controlling 90% of the economy in the industrial age, all of a sudden the government is supposed stay way far out of the business of economic policy making or it will ruin everything!

    After all the new system is…

    …buying and selling.

    Karl Markets is a play on words that suggests that unfettered market types are every bit as bereft of the doings of the selfish human animal. The same selfishness that has nowhere to go to invent and create positively under central planning gets loose and steals all in its wake under no planning economic at all. It’s a pretty good comeback for the types that yell socialism at everything and then don’t have to produce any logical argument (here in American anyway where everyone runs at the mention of the word).

  7. “You seem to be assuming that industries are made up of large singular players rather than a diversity of competing players many of whom are attempting to achieve greater scale and who will sacrifice profits in the interum. I suspect that few industries match your implicit assumption.”

    not at all – in fact it’s small businesses that are more likely to be risk-averse.

    It’s also BTW, small businesses that have least flexibility in adding or firing staff.

    Anyone who thinks small businesses can readily add or fire staff based on a $10 a week fluctuation in wages has obviously never run one.

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