Re: How does productivity turn into higher wages?

From: Les Cargill (lNOcargill_at_cfl.Arr.com)
Date: 01/19/05 

Date: Wed, 19 Jan 2005 01:22:43 GMT

The Trucker wrote:

> wilfred wrote:
>
>
>><zerge@hotmail.com> wrote in message
>>news:1105994298.131535.139850@z14g2000cwz.googlegroups.com...
>>
>>>r...@telus.net wrote:
>>>
>>>>On 17 Jan 2005 08:21:29 -0800, zerge@hotmail.com wrote:
>>>>
>>>>
>>>>>As productivity increases in an industry or in a country, salaries
>>>
>>>tend
>>>
>>>>>to rise.
>>>>>Can anyone explain the cause-and-effect that leads to this dynamic?
>>>
>>>And
>>>
>>>>>I mean at the decision maker level: what happens in the minds of the
>>>>>employers and employees?
>>>>
>>>>It's just that the increased production has to go _somewhere_.
>>>>
>>>>-- Roy L
>>>
>>>Yes, I understand it at THAT level. Supply is demand etc.
>>>I just don't understand the thought processes of the employers and
>>>employees, see? What specific market pressure makes the employers
>>>decide to pay more and/or employees ask for more?
>>
>>Increased production leads to higher profits, should wages remain
>>constant, but employees tend to notice that a larger share of the pie goes
>>to the top, and negotiate higher wages. Employers may be more willing to
>>grant wage increases as they are increasingly able to. I suppose in the
>>very long term wages should tend towards the marginal product of labour,
>>but will usually be prevented from reaching that level.
>>
>>Increased productivity may also encourage employers to employ more workers
>>for the same amount of capital stock, if this is not an optimal
>>labour/capital mix. Increase in demand leads to higher wage offered for
>>labour.
>
>
> _real_ wages are the stuff you get for the money you are paid. Even if
> there is no increase in monetary salary the amount of _stuff_ we all
> get has been increased due to the productivity. Now if nobody tells
> the landlord that we have some slack here then all will be well. But
> all too often he finds out that people can and will pay more rent.

He finds this out because the many-to-many pisoners dilemma doesn't
favor the renters, and people bid rents up - higher rates
do not result in a commensurate decrease in acceptance.

> As that happens he sucks up the excess and hoards it so as to increase
> his control, his power, his wealth.

Or he flows it into other properties, or improvements, or other
investments. It's a poor business shows a profit these days - most
people want capital gains under some sort of trust to hide tax.

Either the landlord is rational, in which case he wants maximum
bang-for-buck, which means reinvesment) or he's exhibiting a
patholgy which eventually cause his holdings to lose value.

> Absent this rent stuff the
> productivity increase would _always_ produce higher _real_ wages
> because, as Roy L says, that stuff "has to go _somewhere_".
>

But people don't have enough non-rent places to use the money,
so they bid up rents out of a misguided sense of
social status, or because it's *legitimately* worth
it to 'em. 

--
Les Cargill

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