crossposted from Northwest Indiana Politics
There are two, and only two, reasons why somebody should get a raise. The first reason is that the money that is being used to pay the salary is being devalued (inflation). But that sort of raise is just getting you to tread water in a rough sense. You’re not really getting ahead because inflationary price rises eat up the entire salary increase and usually more. The second thing is that productivity has risen and you’re creating more goods or services for the same inputs. This is labor productivity. It is the one thing that allows for real sustainable rises in wages.
An increase in labor productivity means we have to work less to get the same lifestyle or the same work earns us a better one. The initial gain goes to the capitalist. He’s the risk taker who made a bet to pay wages in advance of production and he’s gotten a better deal than he bargained for. But if he doesn’t quickly distribute those gains, he’ll lose out because his competitor capitalists can offer better wages and disrupt his operations by hiring away his best, most productive workers.
For workers, a fluid labor market that makes worker poaching easy is vital to distributing labor productivity gains and helps keep the balance between labor and capital healthy. But there are forces that have been hardening the labor markets, and it’s costing us all.
While unions sense the importance of increasing labor productivity to some extent by creating training and certification programs their approach to labor contracts does not take it into account. Instead of promoting labor fluidity, rigid classifications are in vogue. This makes it easier for the union to negotiate salaries because they’re negotiating categories, not people. But it doesn’t serve the workers well.
Another productivity problem is that there’s a persistent gap between public productivity and private productivity growth. Private sector productivity growth has persistently exceeded public sector productivity growth. This creates a growing gap between what an individual worker can accomplish in each sector and a drain of talent away from the public sector.
This persistent gap in labor productivity improvement rates is a key reason why socialism doesn’t work and capitalism does. Literally billions of people have worked over the course of the 20th century to fix this. Nobody’s come close. That’s unlikely to change anytime soon.
The cure for this is to try to get as much as possible into the faster improving private sector and keep as little as possible in the slow improving public sector. If the public sector is small enough, public spirit/public service in the population will be enough to get the small jobs that can’t be privatized done in a reasonable fashion. But stuff too much into the public sector and look out.