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Comment by PaulDavisThe1st | Hacker News Reader

It has a lot to do with income inequality. GDP is a reflection of overall economic activity. If it grows by 10%, it's entirely reasonable to expect that most people's income grow by some number that has a linear relationship to 10%. That's largely what happened in the 50's and 60's.

The conventional measure for this is "percentage of GDP distributed as wages". This number has mostly dropped for the last 35-40 years, whereas its corollary - "percentage of GDP not distributed as wages" has grown. This is the largest single contributor to current income and wealth inequality.

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Wages grow as demand for labor grows and increased economic activity should increase demand for labor. So far so good.

However, that's about as far as the relation goes. Technological improvement can both reduce the demand for labor and increase GDP. If there is no reason for demand for labor to increase, wages won't rise.

The narrative that a small percentage of people is earning so much and therefore everyone else must earn far less is popular, but mostly wrong. I gave you the source that says perfect income redistribution would cause only a wage increase of less than 20% to the current median. That's the real impact of income inequality, it's not more than 100% like this article would like you to believe.

>Technological improvement can both reduce the demand for labor and increase GDP. If there is no reason for demand for labor to increase, wages won't rise.

That's a political statement, not a law of nature. Bundled up in there are a large number of assumptions about how an economy works, how taxation works, what the purpose of a society (or even just technological advancement) really is.

I appreciate that for a lot (most?) people in the USA today, your beliefs about this are the common ones, and they seem self-evident and obviously true. But they are just one choice among many.

If you can't appreciate the difference that every single full time worker making $72k/year would make over the current situation (median of $62k/yr, up dramatically from just a couple of years ago when it was $53k), then I don't think I can help you. Moving the mean of a distribution to "less than 20% higher" than the median is huge!

> That's a political statement, not a law of nature.

That's the way it works in our system, which finds wages through supply and demand, which is a law of nature. You may nitpick and find a couple of salaries or other types of income that are not priced in this way, but it is generally true for the average person.

Whether that system is the best system is indeed a political question, but that's besides the point.

> Moving the mean of a distribution to "less than 20% higher" than the median is huge!

Perhaps, but it's nowhere near the 100% change that the article promises.

>That's the way it works in our system, which finds wages through supply and demand, which is a law of nature.

Is this 8th grade economics? Consider a nation that has strong tariffs on imported goods. Consider another nation that has major obstacles to the investment of foreign capital, and lots of cheap labor. Now consider a political campaign (it doesn't look a campaign, but it is) to remove the tariffs and allow capital to move freely from the first nation to the second.

Result: dramatic changes in the first nation's wages, at least for work that gets moved to the second country.

Remind me again which law(s) of nature is involved here.

None of this contradicts what I said.

In your example, labor supply for the first country has effectively increased while demand has not. In effect, wages must fall in that country.

However, there is now increased demand on that cheaper labor, so those wages must rise, given a limited supply.

I don't think it even makes sense to calculate US wages as a percentage of US GDP, because if I'm understanding the definition of GDP correctly it includes economic activity done in non-US countries with non-US workers. In particular, it's defined as the total value of finished goods produced in the country, which I think means that it includes the cost of imported components and raw materials even though that money doesn't end up in the US at all. So if production of those raw materials and components moves from the US to other countries - which it probably has done, quite a lot - it wouldn't affect GDP but would affect the actual pool of money that US workers could get paid from.

Actual labour share of the actual money being made seems to be pretty hard to measure accurately, from what I can tell.

What you've described is a nice summary of strategy #1 in the pantheon of strategies used by capital to reduce the percentage of GDP that goes to wages.

You weren't actually claiming that the overseas labor got the same chunk in wages that used to go to US labor, were you?

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