Aren't wages directly associated with productivity?

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Question: 

Hello!

I would humbly like to inquire whether this theory explains the drift apart of labor productivity and worker wage as a result of the progress of mechanization. And also I would like to know if it is new and worthy of exhaustive research.

"Increased productivity does not cause nor correspond with an increase in labor compensation. Wages increase in relation to the need for added and specialized skills and the relative scarcity of available labor possessing these. This carries over to skills needed to deploy and operate capital. If capital needs labor with added and specialized skills for it to operate, it will drive the need for higher paid, more specialized workers. The more autonomous the capital is corresponds with an increasingly inverse or stagnant relationship between real labor compensation and increased productivity. Productivity, in itself, is not a driver of added worth to labor." - Michael Nogle July 4, 2016

I am an avid student of history, and social studies, including economics, in my pursuit to gain my secondary teaching credentials. I also have two master degrees, one in liberal studies. I came up with this as a result of these studies. I believe the logic is sound and cannot think of specific areas where my model does not fit. My training in liberal studies has taught me that it is time to ask specialists for further insight.

I hope to hear from you soon.

Mike Nogle

Answer: 

Your proposed theory of wage setting appears to be consistent with the way that most economists would approach this issue.  That is, most economists would accept that an individual’s wage is determined by the “human capital” – i.e., skills, experience, training, and abilities -- embodied in that individual.  The value of this human capital is, in turn, a function of the relative balance of the demand for and supply of these particular skills.  Human capital that is costly or difficult to acquire will be relatively scarce, and (other things equal) more highly compensated.

One of the most comprehensive efforts to apply this logic to understanding the movement of relative wages since the beginning of the 20th century is The Race between Education and Technology by Claudia Goldin and Lawrence Katz (http://www.hup.harvard.edu/catalog.php?isbn=9780674035300&content=reviews)

The human capital approach is premised on the notion that labor is paid its “marginal product” – the value of the additional output that it produces.  One criticism of this approach is that in fact labor’s marginal product is not always well defined, and there is considerable scope for bargaining.  This is an argument that William Sundstrom and I elaborate here: https://works.bepress.com/joshua_rosenbloom/33/ .

While productivity increases thus need not increase wages for any particular group of workers, overall rising productivity increases the size of national income and increases income for some segment of society (either owners of capital or certain groups of workers).  The point that Sundstrom and I emphasize is that division of national income is determined not just by markets, but by the larger political environment and resulting legal system within which workers and owners of capital bargain with each other.

 

Last updated on September 20, 2016