Lecture 10 Tuesday, October 5 High Road Capitalism

Lecture 10Lecture 10Tuesday, October 5Tuesday, October 5

High Road CapitalismHigh Road Capitalism

A Economic Balance sheet for A Economic Balance sheet for the United States at the the United States at the

beginning of the 21beginning of the 21stst Century Century

AVERAGE WEEKLY EARNINGS (IN 2007 dollars, adjusted for inflation)

Annual rate of growth of family income by income groupAnnual rate of growth of family income by income group1947-79 compared to 1979-20051947-79 compared to 1979-2005

19732007

Productivity

Average compensation

Median compensation

Patterns of Job Growth in the US, 1960s versus 1990s

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

1990-1992

1992-2000

2000-2002

2003-2007

Net change in number of Jobs

Job quality quintiles (1 = lowest; 5 = highest)

Figure 9.8. Patterns of Job Growth and Decline, 1990-2007

Imports, Exports, and trade balance as a percent of GDP, 1947-2007

Era of trade deficits

% of total profits in the economy that come from the financial sector

Financialization of the American Economy

What should be done?

Close off the low road, pave the high road, and help firms and workers move from the first to the second.

“Low Road” “High Road”

Basis of firm competition

Primarily price Primarily quality

Nature of product marketTypical jobsskillstraining

Training process

Job autonomyhierarchy

wages

High Road versus Low Road CapitalismHigh Road versus Low Road Capitalism




Nature of product market

Mass goods, homogeneous products Specialized/customized goods

Typical jobsskillstraining

Training process


wages







Typical jobs very specialized Multi-task

skillstraining

Training process


wages







Typical jobs very specialized multitask

skills low skill: “trained gorilla” high skill

training

Training process


wages









training job specific & concrete skills meta skills transferable across jobs

Training process

short job training provided by employers

life-time training and retraining provided by employers and public institutions


wages










Training process



Job autonomy Low high

hierarchy

wages










Training process




hierarchy rigid differentiation of managers and workers with many managerial layers

low differentiation of managers and workers with few layers

wages










Training process




hierarchy rigid differentiation of managers and workers with many managerial layers

low differentiation of managers and workers with few layers

wages relatively low wages relative high wages


Problems moving from the Problems moving from the low road to the high roadlow road to the high road

Profits

Skill Level of Workers in a firm

Low High

The Relation of skill levels of workers to profits of firms

Profits

Skill Level of Workers in a firm

Low High

Two ways to increase profits

deskilling Skill enhancement

Low Road

High road

Ability to compete in international competition

Time

Transition trough from low road to high road

THE TRANSITION TROUGH TRAP

You provide training

YES NO

All other firms provide

trainingYES

$20,000A

$30,000B

NO-$10,000

C$0

D

The Training Deficit Trap: a free riding problem (from lecture 4 & 5)

Training costs = $10,000Extra Gross Profits with trained workers = $30,000Net extra profits if you provide training and keep workers = $20,000Net extra profits if you provide training and workers leave = -$10,000

Com

petit

iven

ess

Strength of worker organization and participation

Low High

The anti-union trap:The relationship of union strength to competitiveness of firms

Com

petit

iven

ess


Low High

The USA today


Com

petit

iven

ess


Low High

Moving toward the high road

continuing the low road

The USA today


Lecture 10 Tuesday, October 5 High Road Capitalism

Documents

employerslifetime training

inflationannual rate

family income

income group1947

snet change

average weekly earnings

era of trade deficitswhat