Labor union decline, not computerization, main cause of rising corporate profits

May 30, 2013

A new study suggests that the decline of labor unions, partly as an outcome of computerization, is the main reason why U.S. corporate profits have surged as a share of national income while workers' wages and other compensation have declined.

The study, "The Capitalist Machine: Computerization, Workers' Power, and the Decline in Labor's Share within U.S. Industries," which appears in the June issue of the American Sociological Review, explores an important dimension of that has been largely overlooked in research and the national discourse.

"Most of the research on growing economic inequality focuses on rising earnings inequality among workers, including the growing income share of the top 1 or 10 percent," said study author Tali Kristal, an assistant professor of sociology at the University of Haifa in Israel. "But this is only part of the overall picture on rising economic inequality, or as -winning economist and columnist Paul Krugman writes, this 'may be yesterday's story.' The other part is the distribution of national income, the total economic pie, between workers' compensation ('labor's share') and corporate profits. It's a zero sum game: whatever is not going to the workers goes to the corporations."

Kristal found that from 1979 through 2007, labor's share of national income in the U.S. private sector decreased by six percentage points. This means that if labor's share had stayed at its 1979 level (about 64 percent of national income), the 120 million American workers employed in the private sector in 2007 would have received as a group an additional $600 billion, or an average of more than $5,000 per worker, Kristal said.

"However, this huge amount of money did not go to the workers," Kristal said. "Instead, it went to corporate profits, mostly benefiting very wealthy individuals."

The question is: why did this happen?

"Some economists contend that computerization is the primary cause and that it has increased the productivity of machines and skilled workers, prompting firms to reduce their overall demand for labor, which resulted in the rise of corporate profits at the expense of workers' compensation," Kristal said. "But, if that were the case, and computerization was the principal cause for the decline in labor's share of national income, then labor's share should have declined in all economic sectors, reflecting the fact that computerization has occurred across the board in the past 30 to 40 years."

This is not the case, however, as Kristal showed in her study, in which she considered data on 43 non-agricultural private industries and 451 manufacturing industries from 1969 through 2007.

"It was highly unionized industries—construction, manufacturing, and transportation—that saw a large decline in labor's share of income," Kristal said. "By contrast, in the lightly unionized industries of trade, finance, and services, workers' share stayed relatively constant or even increased. So, what we have is a large decrease in labor's share of income and a significant increase in capitalists' share in industries where unionization declined, and hardly any change in industries where unions never had much of a presence. This suggests that waning unionization, which led to the erosion of rank-and file workers' bargaining power, was the main force behind the decline in labor's share of national income."

In addition to the erosion of labor unions, Kristal found that rising unemployment as well as increasing imports from less-developed countries contributed to the decline in labor's share.

"All of these factors placed U.S. in a disadvantageous bargaining position versus their employers," said Kristal, who also demonstrated that while employers gained most of the benefits from computerization, much of computer technology's effect on the decline in labor's share of national income was indirect, and channeled through its role in reducing unionization. The direct effect of on the decline in labor's share was relatively modest, Kristal said.

"In short, my study shows that capitalists have rarely had it as good as they did from 1979 through 2007," said Kristal. "The empirical analysis of this study ends at 2007, but updated data reveal that although the great economic recession reduced corporate profits as a share of national income, it was only a short-run effect (of about 2 years) and the golden age of corporate profits has continued well into 2010 and beyond."

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Neinsense99
2.5 / 5 (11) May 30, 2013
Any relationship with widening income inequality, such as less employee ownership of these profit machines due to weakened unions to push for such things?
ken_meyer_9275
3 / 5 (8) May 30, 2013
I find it rather amusing that the comment of....

""It was highly unionized industries—construction, manufacturing, and transportation—that saw a large decline in labor's share of income"

....led to the rather contorted conclusion that....

"This suggests that waning unionization, which led to the erosion of rank-and file workers' bargaining power, was the main force behind the decline in labor's share of national income"

...instead of the much more obvious (and likely!) one that unionization CAUSED the erosion of rank-and-file workers income! The fact is that unions drove jobs away in droves...and to hold that they're NOT at fault for the decline in both jobs and wages would seem to be an exercise in wishful thinking.
Shelgeyr
1.9 / 5 (9) May 30, 2013
I don't have the time, space, or interest necessary to point out all the flaws in this study, except to say it is yet more leftist spin, and that citing Paul Krugman is all the reminder anyone should need about how degraded the Nobel Prize has become.

No, what I'd like to point out is the (I assume) inadvertent hilarity encapsulated by the article's title:

Labor union decline, not computerization, main cause of rising corporate profits


While I don't quite buy the direct cause-and-effect relationship, I consider both "labor union decline" and "rising corporate profits" to be good news, so win/win there!

So, what we have is a large decrease in labor's share of income and a significant increase in capitalists' share in industries where unionization declined...


I don't really believe her, but let's pretend it is true... Still "Yay!"

Topher86
5 / 5 (2) Jun 03, 2013
ken_meyer_9275: The argument as worded can be a little confusing, I believe you missed the sentence that connected these two statements,

"So, what we have is a large decrease in labor's share of income and a significant increase in capitalists' share in industries where unionization declined, and hardly any change in industries where unions never had much of a presence."

That is, what had been keeping workers' wages higher in those sectors previously had been relatively high unionization, but as unions *declined* so to did the wages. It's not that other sectors' wages are higher because they have less unions, it is that wages in those sectors did not *decrease* (because they were not being kept higher by unions in the first place).
JohnGee
2.1 / 5 (7) Jun 03, 2013
While I don't quite buy the direct cause-and-effect relationship, I consider both "labor union decline" and "rising corporate profits" to be good news, so win/win there!
Have to keep that battery charged, right? Incredible...

Why so much disdain for Krugman? Doesn't he spoon-feed you the BS you need to believe your worldview?

"We rarely hear, it has been said, of the combination of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate[.] When workers combine, masters ... never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen." -Noted union thug, Adam Smith
ryggesogn2
1 / 5 (4) Jun 03, 2013
Sounds like an article from the American Socialist Review.
""Instead, it went to corporate profits, mostly benefiting very wealthy individuals.""
And all those who held stock in the company and depended upon the company to pay retirement.

"that saw a large decline in labor's share of income,"
You mean the labor UNION's income.
JohnGee
2.1 / 5 (7) Jun 03, 2013
I know it can be a little hard to make out what an 18th century autistic Scot is saying, ryggesogn, but I'll give it a whirl.

"{Some say we rarely hear of corporate collusion though we frequently hear of union abuses. However, anyone who thinks corporate collusion does not take place is as ignorant about the world as he is of the economy. Employers are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate[.] When workers form unions, employers ... always seek government assistance in enacting and enforcing laws that weaken unions.}"

Smith sounds like a Marxist in the original quote. My much more mild translation just goes to show you how the "masters" have controlled language over the centuries, just as you attempt near daily on this website.
ryggesogn2
1.3 / 5 (4) Jun 03, 2013
"from Adam Smith, and here it is:

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it.¹"
"Adam Smith said that trade unions are forever and un­equivocally antithetical to the free economy; but he added that it would be difficult and destructive of liberty to legislate them out of existence and that this should not be attempted. He proposed that they be tolerated but in no way encouraged or granted special privileges and immunities.

Read more: http://www.fee.or...VBl5oLqX

Smith wasn't opposed to unions per se but he would be opposed to forcing workers into a union.
ryggesogn2
1.4 / 5 (5) Jun 03, 2013
". "Our policy is to reduce the price, extend the operations, and improve the article," Ford wrote. "You will notice the reduction of price comes first." He explained, "We have never considered any costs as fixed. Therefore, we first reduced the price to a point where we believe more sales will result." From 1908 to 1913, Ford knocked down the price from $850 to $600, and sales leaped from about 18,000 to 168,000. "Every time I reduce the charge for our car by one dollar, I get a thousand new buyers,""
"But the work was not challenging. Partly as a result, he (and many other industrial employers) had high rates of turnover and absenteeism. Ford found himself spending $100 to train each new worker, though many stayed only for a month or two and then quit. Ford's reaction to this problem was dramatic: in 1914 he doubled his minimum wage to five dollars a day and cut daily working hours from nine to eight.

Read more: http://www.fee.or...ph-of-th
ryggesogn2
1.2 / 5 (5) Jun 03, 2013
"The experiment caught the industrial world by surprise. His competitors were startled; his workers were energized. Ford himself was ecstatic. Some of the most talented workers in Detroit lined up by the thousands to apply for jobs with Ford. He couldn't hire as many as he would have liked because turnover and absenteeism almost disappeared overnight. No one wanted to lose his job. As a result, production surged and profits skyrocketed. Ford happily paid the higher wages and also cut the price of the Model T by over 10 percent in 1914, 1915, and again in 1916. With each cut, more and more of his workers could afford to buy the cars they were making. Ford was delighted to violate "the custom of paying a man the smallest amount he would take."

Read more: http://www.fee.or...VBnGrhyy
Hershey did the same yet they were screwed by union thugs.
ryggesogn2
1.2 / 5 (5) Jun 03, 2013
" The law also gave labor the right to organize and collectively bargain. As Ford said when the NRA was being prepared, the government "has not any too rosy a record in running itself this far." As American industrialists rushed to Washington to comply with the NRA, Ford resisted and refused to sign any code. "I do not think that this country is ready to be treated like Russia for a while," Ford wrote in his notebook. "There is a lot of the pioneer spirit here yet." However, General Motors, Chrysler, and the smaller independents eagerly signed the Blue Eagle codes that, under penalty of fine and imprisonment, regulated all aspects of their businesses. Ford was astounded: his colleagues preferred stability and government regulation to competition and free trade."
http://www.fee.or...VBkmplxG
And look at Detroit today.
ryggesogn2
1 / 5 (4) Jun 03, 2013
"Detroit's inventors, entrepreneurs and financiers made it the second-fastest growing city from 1900 to 1930, behind only Los Angeles, which started off much smaller."
"Detroit was the prime example of what I have called "Big Unit America," in which the heads of large organizations -- big business, big labor, big government -- made the big decisions and the hundreds of thousands of people below them, small cogs in a very large machine, carried them out."
"Unions were given a stranglehold on city finances.

Numbers tell the story. In 1950, there were 1,849,568 people in Detroit. In 2010, there were 713,777. White flight was followed by black flight; there were fewer black residents in 2010 than there were 20 years before."

Read more: http://www.realcl...VD1dcbbB
Follow us: @RCP_Articles on Twitter
Unions <=> corruption.
Howhot
5 / 5 (2) Jun 04, 2013
It's a sad day in America when unions are the enemy of the working man, and Walmart is the savior. A select few seem to think that everyone's wages (except theirs of course) are to high for corporations to make a profit. As has been the case over and over, corporate greed outweighs civility or respect for the common mans efforts to toils.

Just look at the history of the coal miner unions or the great coal mine strike of 1902. I think the problem with America now of days not that Unions <=> corruption (a lie that the facists tea party and republicon conservatives like to push). The problem now of days is we don't have enough strikes!

But then my dad was a Union man. Your dad was probably one too.