September 22, 2013 at 1:03 pm #18001
Hi Dr Herbener,
It is often argued that capital accumulation and the production of machinery which workers can use, increases workers’s productivity which in turn leads to an increase in wages. But why have wages of workers that have not benefited directly from new technology (e.g. a waitress) also increased?
I’ve got a “theory” on why that is so, but I just want you to express your thoughts without having to consider mine here. Thanks!September 23, 2013 at 1:57 pm #18002jmherbenerParticipant
A worker’s wage is the same as the Marginal Revenue Product of his labor, which is the combination of its physical productivity and the market value of what he produces. Thus, a worker’s wage will increase if the market value of what he produces increases, even if his physical productivity doesn’t rise.
The money wage also depends on the purchasing power of money. A worker’s money wage can rise even if his “real” wage, i.e., the purchasing power of his wage, doesn’t.
In 2012, the BLS estimate of the average wage for Waiters and Waitresses was $9.95 and employment was 2,332,020.
In 1999, the average wage was $6.46 and employment was 2,039,950
That’s a 54 percent increase in the average wage and a 14 percent increase in employment over 13 years.
The CPI was 229.8 in May 2012 and 166.2 in May 1999. Prices increased 38 percent over those 13 years.
Thus, the real wage of waiters and waitresses increased from $6.46 to $7.21 or 11.6 percent over those 13 years.
Without knowing any relevant details about this labor market, including the extent and type of government intervention, I would say that demand for restaurant meals has increased, pushing up their prices and increasing the demand for waiter and waitress services. The larger demand has modestly increased employment and real wages.September 23, 2013 at 2:58 pm #18003
Thanks a lot, I guess this is what I was thinking about:
“Thus, a worker’s wage will increase if the market value of what he produces increases, even if his physical productivity doesn’t rise.”
I’m not sure about the following thiugh:
Fundamentally, for real wages to increase, a higher market value is not enough. Only capital accumulation and an increase in production can increase wages substantially over a sufficiently long period of time. And increased wages of workers that use machinery can increase wages of workers with no machinery by purchasing their products/services thanks to their higher purchasing power!
Is this correct? :September 23, 2013 at 8:32 pm #18004jmherbenerParticipant
For real wages to increase across the economy, there must be capital accumulation and greater productivity. But for real wages to rise in one sector of the economy, like restaurants, all that’s necessary is for demand to shift away from other areas into restaurant meals.
Yes, increased real wages of workers from rising productivity in sectors that use machinery can raise the real wages of workers in sectors that don’t use machinery but only by increasing demand for the products they produce as we have both said.
In either case, the key is increasing demand for the products produced by workers in the sector without machinery.September 24, 2013 at 6:30 am #18005
Thank you, I’ve been wonderinh about this for a while now.
- You must be logged in to reply to this topic.