Technology: The bane of the middle class

Productivity up; wages down. Blame the computer.


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Andrew Leonard
March 27, 2006 11:36PM (UTC)

The numbers are brutal. An article in today's Wall Street Journal (available to nonsubscribers) begins with the following sentence:

"Since the end of 2000, gross domestic product per person in the U.S. has expanded 8.4 percent, adjusted for inflation, but the average weekly wage has edged down 0.3 percent."

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The author, Greg Ip, points to "workers' lack of bargaining power in the face of high unemployment and companies' use of cost-cutting technology" as part of the explanation. Another possible factor is the 16 percent rise in healthcare costs since 2000 for companies, which, says Ip, is "making employers less generous with wages." And finally, there are the good old Bush tax cuts, disproportionately increasing take-home pay for those at the top.

The stock conservative response is that rising productivity will ultimately translate into wage growth, even if it's taking a bit longer than usual. And with unemployment low, sooner or later workers will have more leverage to bargain with.

But will that really happen this time around? Continuous improvements in technology, says Harvard economist Lawrence Katz, are depressing wages for middle-class jobs.

Nowhere in the article will you find the words "globalization," "offshoring" or "international competition" mentioned. But since technological change, particularly in communications, is a primary enabling factor of globalization, I Googled Katz to see if he connected those dots in any recent papers.

Katz and two co-authors lay out their theory of technology as middle-class-killer in "The Polarization of the U.S. Labor Market, an NBER working paper datelined January 2006. The authors find that wage inequality has been growing since around 1980. But the real breakdown, they say, is not between the top and the bottom, but between the top and the middle. Low-income worker wages have been staying about the same, or even slightly rising. But middle-income workers are getting the shaft.

Katz argues that this is because computerization has displaced "routine" tasks such as bookkeeping and clerical work. This has enabled highly skilled workers to become disproportionately productive and demand higher wages, while at the same time lowering the demand for medium-skilled workers. Those involved in manual labor that is not easily replaced by technology are relatively unscathed.

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Near the end of the paper, the authors note that "A similar, (complementary) impact of international outsourcing could arise from the declining international communication and coordination costs associated with improvement in information technology."

That last note references "Offshoring in the Knowledge Economy," a paper forthcoming in the Quarterly Journal of Economics. Although a bit too heavy on the math for layman comprehension, its basic point is the same. Since the beginning of the 1990s, the drop in costs for communication technologies has permitted "Northern" managers to take advantage of "Southern" labor. For those at the top (in the North) or the bottom (in the South) this has advantages. For those in the middle, especially in the North, the squeeze is on.

So what do we learn from all of this? The great fear about offshoring is that it is poised to move up the value chain, replacing high-paid white-collar jobs in the developed world with cheaper foreign competition. Exactly the same fear applies to technology: computers, robots and other technological advances are also climbing the value-added ladder.

A government could theoretically slow offshoring by protectionist means. But how do you stop technological change?

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Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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