Why aren’t most of us getting richer? Darden Professor Peter Rodriquez says globalization makes for big profits for the few in finance while slimming the demand for blue-collar workers.
Our country’s workers are becoming more valuable in their hours, with productivity rising 16.6 percent from 2000 to 2005. All well and good. But, breaking the predominant trend of the last century, wages are declining—since 2003, median hourly wages have declined 2 percent, after accounting for inflation. That’s not so good.
To help make sense of this, we turned to Peter Rodriguez, a professor at UVA’s Darden School of Business, who studies international trade.
“Like a lot of economists, I’m surprised too,” says Rodriguez. “Productivity gains frequently go ahead of wage increases, and so we’ve been expecting those gains to show up somewhere in the statistics of wages and salaries for a while, but they really haven’t. They’ve been late.” Here’s more of what he had to say.
C-VILLE: What’s behind this growing wage and income inequality?
Peter Rodriguez: The biggest thing you see going on is globalization, and I buy that argument. The migration of jobs to China and India and immigration into the U.S. from Mexico and Central America are really the same phenomenon in a way. Globalization is about connecting jobs and people, and either you take the jobs to the people or the people come to the jobs.
Both of those trends have had the effect of limiting wage gains, particularly in the bottom half of the income distribution. This trend has really hollowed out the core of what we used to consider premium blue-collar jobs. I don’t expect those to be promoted with any economic policy and I don’t expect those to come back.
Are corporate profits coming at the expense of workers?
Certainly upper management could share more, on average. I wouldn’t put them all in the same basket. Some are really awful at bringing along all of their workforce, some of them are quite good. But they’re not creating the types of jobs and they’re not being compelled to raise the wages in the way they have in the past.
Yet we’ve seen dramatic pay increases or earners in the 99th percentile over the past 40 years.
The argument is that we’ve seen an evolution in markets and technology that has allowed a small number of people to do a great job of serving a much larger number. So as you’ve seen these middle classes explode everywhere in the world and everything can be digitized and zapped here or there, a few people—the great stars of the moment—can capture that.
In industry it’s true too that that scale has just gone incredibly high. If you think about a Goldman Sachs, they can rally enough capital to leverage any event in the world, and it’s a relatively small club of people who do that. They can have these enormous gains that were unassailable before. It is kind of strange. I think their average associate pay is $500,000.
People get mad about Goldman Sachs but not about Michael Jordan.
That’s true, but they’re not all that different. The markets, while not perfectly competitive, are at least as competitive as 1966. We’ve garnered a lot more tools that make it possible. It’s just like a physical example of a lever—the levers have gotten much larger. Legislation hasn’t held any of it in check, I guess is the other part of it.