A new age of the worker will overturn conventional thinking

Weekly Business Insights from Top Ten Business Magazines | Week 325

Shaping Section | 1

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 325 | December 1-7, 2023

A new age of the worker will overturn conventional thinking

The Economist | November 30, 2023

Extractive Summary of the Article | Listen

Even as the suspicion of free markets has hardened, evidence for the argument that inequality is rising in the rich world has become flimsier. Wage gaps are shrinking. Since 2016 real weekly earnings for those at the bottom of America’s pay distribution have grown faster than those at the top. Since the covid-19 pandemic this wage compression has gone into overdrive; according to one estimate, it has been enough to reverse an extraordinary 40% of the pre-tax wage inequality that emerged during the previous 40 years. A blue-collar bonanza is under way.  Across the Atlantic, such trends are more nascent, but still apparent.

All this can be discombobulating, not least when the prices you pay for food and energy have risen at an unusually fast pace.  To understand what is going on, it helps to consider that the blue-collar bonanza is not just an artefact of the statistics: it makes intuitive sense, too. Three forces that shape labour markets—demand, demography and digitisation—have each shifted in ways that benefit workers.

Take demand. After quiescent inflation in the mid-2010s, America’s Federal Reserve resolved to run the economy hot in the hope that doing so would bring more people into work. Then, after covid-19 struck, governments across the rich world untied the purse-strings. This year the pandemic is a memory, but America has continued to run deficits of a size usually seen in depressions or wartime. As a consequence, demand for labour has stayed high even as central banks have raised interest rates.

That higher demand has met with constrained supply, owing to shifts in demography. In 2015 a long-running global demographic dividend came to an end as China’s working-age population peaked. In the rich world the prime working-age population is growing at its slowest pace on record, and will probably start falling by the end of the decade. That adds to the tightness in labour markets.

Shifts in digitisation, meanwhile, have changed who stands to benefit most in today’s labour market. At the end of the 20th century the information revolution vastly increased the demand for college graduates with brains and computing skills. From Wall Street to Walmart these stars were put to work transforming how firms did business, making use of new tools including email and spreadsheets.

The bonanza for workers, though, shows governments need not shackle markets for workers to do well—and that the best route to prosperity for all is to increase the size of the economic pie. If you fight too much over distribution, you risk bringing the golden age to a premature end.

3 key takeaways from the article

1. Even as the suspicion of free markets has hardened, evidence for the argument that inequality is rising in the rich world has become flimsier. Wage gaps are shrinking. Since 2016 real weekly earnings for those at the bottom of America’s pay distribution have grown faster than those at the top.  A blue-collar bonanza is under way.  Across the Atlantic, such trends are more nascent, but still apparent.
2. The blue-collar bonanza is not just an artefact of the statistics: it makes intuitive sense, too. Three forces that shape labour markets—demand, demography and digitisation—have each shifted in ways that benefit workers.
3. The bonanza for workers, though, shows governments need not shackle markets for workers to do well—and that the best route to prosperity for all is to increase the size of the economic pie. If you fight too much over distribution, you risk bringing the golden age to a premature end.

Full Article

(Copyright lies with the publisher)

Topics:  Employment, Economic Development, Wealth Distribution