Monday, July 6, 2015

Deindustrialization And Poverty Level Wages

One of the fundamental concepts of neo-liberal ideology is that the state should not interfere in the labor market.  The assumption is that market determined wages will be sufficient to provide at least a subsistence level of existence for families.  States have typically found it necessary to subsidize households that encounter a temporary interruption in wage income, or to care for those who are to old to work, but state interference in the labor market has always been anathema to neo-liberal ideologues.  This article provides a historical review of this issue as it has evolved in Britain.  It argues that deindustrialization in Britain has increased the need for the state to intervene in the labor market.  The transition from an industrial economy to a services economy has led to a new problem.  Many high paying services jobs have been created, but most of the services jobs do not provide an above poverty level of wages.  Unfortunately, the conservative government in Britain has justified its resistance to wage subsidies by invoking the neo-liberal arguments against state interference in the labor market that have a long history in the neo-liberal world that includes Britain and most advanced economies.

It is interesting to compare deindustrialization with the transition from an agricultural economy in the US to an industrial economy.  During that period higher paying industrial jobs replaced low paying farming jobs. The reverse has happened during deindustrialization.  The recovery from recession in the US is now complete if one uses the traditional unemployment rate as the measure.  However, it is far from complete if one takes a deeper look at the labor market.  There has been almost no growth in wages over the last 30 years, and much of the growth in employment has been in temporary or part-time jobs that do not pay for healthcare insurance.  There has also been a transition from employer provided defined benefit pension plans to defined contribution plans.  The link that used to bind employers and employees to the welfare of the firm has disappeared.  That has been replaced by a single, more powerful link, between top management and the shareholders of the firm.  The huge rise in top management compensation is also explained by reference to neo-liberal ideology.  That is, the rise in their compensation is justified by an increase in their productivity.  Their employment contracts also provide an increased level of security, while the security of most employees has declined.  The severance packages and pension plans, that are guaranteed by their contracts, are fit for a king.  They are being rewarded by compliant boards of directors for their singular contribution to the short term rise in the price of their stock.  Part of that rise is produced by reducing the cost of employee compensation.

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