Does Work Feel Like a Treadmill to Nowhere? Blame The Iron Law of Wages

To almost all Americans, the American Dream means having a job that enables you to enjoy a middle-class standard of living, with adequate health care for yourself and your family, hope for a decent retirement, and the opportunity for your children to access the post-secondary education they need to make it in a tough world. Today, approximately five percent — or realistically, closer to two percent — of American workers have jobs that provide enough income to live the American Dream without some help from taxpayer-subsidized social insurance programs to cover retirement, health care, post-secondary education for their children, and public assistance in the event of a family emergency.

In a society that preaches individualism and self-reliance, virtually all but an extraordinary few American workers now find themselves in need of help from taxpayers to be able to live, let alone to live well. Static or falling real wages, the ever-present risk of job loss, and a growing dependence on taxpayers for their ability to grab a share of the American Dream have led to emotional anxiety, financial insecurity, and social confusion among most of the workforce. Those confronted by this new reality need to know what has caused it and how they can improve their lives and the lives of their families.

Impersonal and Inexorable Forces at Work

Our capitalistic economy is dynamic, innovative, and forward-looking, forever searching for ways to increase profitability for capitalists. However, economic forces beyond our control are swelling the ranks of ordinary workers. In today’s technological and globally driven economy, workers with commonplace skills who lack special skills valued by employers face the bleak economic reality of a low-income work life with a severely limited ability to better themselves economically.

On the surface, society benefits from massive investments in technology to increase profitability of companies, with benefits not only for investors, but also for consumers. But beneath the surface, such profitability comes at a steep price: the displacement of millions of workers. Capitalists’ never-ending quest to cut labor costs profoundly affects America’s workforce. Their continuing effort to cut labor costs means that workers with prized-skills may soon find their skills obsolete. Meanwhile, workers who have achieved hierarchical status in a profitable business may find their businesses uncompetitive.

A perilous future awaits American workers. As the total number of high-skilled, high-income jobs available to them shrinks, displaced workers will be forced to upgrade their skills or compete for the lower-skilled jobs that remain. The resulting competition could become brutal to the extent that the rate of job loss among formerly high-income, high-skilled jobs is faster than the rate of new low-income, low-skilled jobs being created. Confronted by the real risk of job loss and a life of stagnating wages, currently employed workers — including high-income, high-skilled ones — should continuously ask themselves, “If I lose my job, what’s the next best job I can get and how long would it take me to get it?”

The Iron Law of Wages Dictates Your Worth

All of this means that the Iron Law of Wages — thought to be a relic of 19th and early 20th Century capitalism — has reappeared with a vengeance. Simply put, the Iron Law of Wages stands for the proposition that any time the population of a labor pool grows faster than the demand for it, wages will stagnate or fall for those in it. With only a tiny percentage of the total workforce whose jobs are immune to the risk of job loss, the rest of American workers are prey, in varying degrees, to its effects.

Progress in technology has rushed the automation of a widening range of jobs with rare skills — the displacement of physical skills by more dexterous, self-maintaining robots and knowledge skills by more imaginative, self-teaching AI. Globalization through ubiquitous electronic communication, the proliferation of international supply chains, and the ease of international travel enables the offshoring (direct and indirect) of almost all jobs, including jobs that must be performed on site.

To be immune to job loss due to automation or globalization, a worker must have a unique talent and be a successful top leader in business, finance, scientific research, academia, the professions, entertainment, sports, and/or the arts. All other high-income, high-skilled jobs are at risk of job loss, to a greater or lesser extent, by automation and globalization. (For a detailed discussion of The Iron Law of Wages, see this section in my book Payback.)

Under capitalism, a worker’s worth is measured by a single test: What an employer pays. Based on this test, workers can be divided into three categories, as follows:

• Ordinary workers have commonplace skills unappreciated by markets and can be easily replaced. Therefore, they earn below average income and cannot expect it to keep pace with inflation.
• Extraordinary workers have special, marketable skills that aren’t easily replaced, and therefore earn average or above-average income. They can expect their income to keep pace with or slightly exceed inflation.
• Super extraordinary workers have unique skills that markets prize and are extremely difficult to replace. They earn income at and above the 98th percentile and can expect it to rise faster or much faster than inflation.

Each worker can look at their current situation and decide for themselves which category they fit. (For a detailed discussion of ordinary, extraordinary, and super extraordinary, workers check out the Payback website here.)

What Can We Do About the Plight of the American Worker?

Suffice it to say that being an American is nice, but not nice enough to induce a capitalist to pass up hiring a qualified foreign worker who is willing to work for less. In the not-so-distant future, to become or remain highly valued by an employer, a worker must have marketable physical and/or knowledge skills that cannot be performed by either a robot or the latest version of artificial intelligence.

To avoid being displaced or consigned to the swelling ranks of ordinary workers, now is the time to take inventory of your skills and create a plan to acquire ones that put you on the path to securing your future. Such advice is often proffered by well-meaning business and policy leaders, but in my view, suggesting to millions of workers that they should stop complaining and pull themselves up by their bootstraps is simply avoiding the real issue at hand.

In deciding what can be done to better the lives of ordinary or even extraordinary workers, capitalists should imagine how much money they will make in an America with an under-skilled, uncompetitive workforce and an impoverished consumer base unable to purchase their products. Employed extraordinary workers and super extraordinary workers might take this moment to think about how certain they are that they will keep their jobs or replace them, because that day could be coming soon.

In my next article, I will share what I believe should be done based on my knowledge of our tax system. In the meantime, check 0ut my book, Payback: Why the top 1% Must Invest in the Rest to Renew America available at the Payback website.