The Presumed ‘Mystery’ of Frozen Wages

Commentary No. 459, October 15, 2017

According to neoclassical economic theorizing, the relation between wages and jobs is a simple one. When there’s not enough demand for work, wages suffer. Workers compete against each other to get a job. But when there’s high demand for work, wages go up. Employers compete against each other to get the now scarce work force. This shifting cycle is said to maintain the smooth functioning of the free market system, guaranteeing a constant swing back to a moving equilibrium.

What has happened is that this cyclical process isn’t working that way anymore, and for pundits and academics this is seen as a big puzzle to explain. The explanations are varied and multiple. What seems to be at their heart is to suggest that there is a new normal. But why, and how does it work? In the October 8 issue of the New York Times, the lead article in the Sunday Business section had the following headline: “Plenty of Work: Not Enough Pay: Even as job markets tighten in major economies, low unemployment is failing to spur robust salary gains.”

We are offered the explanation of an increase in temporary or part-time workers, plus robots. This makes the employer, it is argued, less dependent on full-time workers. Unions are weaker, and workers find it more difficult to fight employers. All of this is of course true. But why now and not before?

One relatively new argument is that of the vanishing worker. But how can workers vanish? What can this possibly mean? It seems that more and more workers are dropping out of seeking employment entirely. Perhaps they have run out of a safety net or accumulated savings. They have become homeless, or druggies, or both. But they didn’t just drop out, as though this were their choice. They were pushed out, which has a double advantage for producers. They do not need to invest (via taxes or otherwise) in social protection. And they instill fear in those workers still looking for employment that they too could be pushed out.

Again, why now and not before? Before, whenever that is, was during the normal functioning of the modern world-system. Capitalists needed these cycles to work properly with maximum long-term increase in surplus-value. But suppose the employers know, cognitively or intuitively, that capitalism is in a structural crisis, and therefore is moribund. What might they then do?

If they don’t need to worry about effective demand to sustain the system, then they might as well get what they can for as long as they can. They would become entirely oriented to the very short-run. They would seek simply to increase returns on the stock market, without a thought for the morrow. Is this not what is happening now throughout the richer nations and even among weaker ones?

Of course this cannot last. That is why the fluctuations are so great, the chaos so deep. And a few of them, the shrewdest capitalists no doubt, are concentrating on winning the battle of the middle-run to determine the nature of the future world-system (or systems) that we shall construct. We are not seeing a new normal. We are witnessing a transitory reality.

So, what is the lesson for those of us who worry about the “vanishing” workers? Quite clearly we must struggle to defend whatever protection they still have. We must, as I like to say, work to minimize the pain. But at the same time we must also struggle to win the intellectual, moral, and political battle of the middle-run. Only a strategy that combines the struggle of the short-run with the struggle of the middle-run has a chance of preserving the possibility of that better world that is really possible, but not at all inevitable.