No, Productivity Does Not Explain Income — Blair Fix

Did you hear the joke about the economists who tested their theory by defining it to be true? Oh, I forgot. It’s not a joke. It’s standard practice among mainstream economists. They propose that productivity explains income. And then they ‘test’ this idea by defining productivity in terms of income.

In this post, I’m going to show you this circular logic. Then I’ll show you what productivity differences look like when productivity is measure objectively. They’re far too small to explain income differences....

Naked Capitalism
No, Productivity Does Not Explain Income

Blair Fix, a PhD student at the Faculty of Environmental Studies at York University in Toronto, Canada and author of ‘Rethinking Economic Growth Theory From a Biophysical Perspective‘ 2015)

Originally published at Economics from the Top Down; cross posted from Evonomics

Matias Vernengo — An increase in rents is behind the rise in inequality

Eileen Appelbaum delivered the David Gordon Memorial Lecture at the Chicago Meetings of the Union of Radical Political Economics (URPE). The lecture, and the comments by John Schmitt will be published later in the Review of Radical Political Economics (RRPE). The gist of the argument is that ever stronger corporations use their dominant position in markets, patent and copyright protections, and their political influence to obtain favorable regulations and tax breaks to earn monopoly rents at the expense of consumers....

This, the fact that workers with similar skills get paid significantly different wages, suggests to her that the old story that inequality results from skill-biased-technical-change (SBTC) is incorrect, and that the power of corporations to extract rents can be seen as a New Labor Segmentation, which is superimposed on the old one, researched by David Gordon and his co-authors.

Naked Keynesianism

An increase in rents is behind the rise in inequality
Matias Vernengo | Associate Professor of Economics, Bucknell University

David Glasner — Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be

Short version: It's the rent, stupid.

Most people feel (rightly) that there's something wrong with capitalism distribution that violates the principle of just deserts. It's unlikely that many understand the argument behind just deserts being the result of marginal productivity, but they get the gist of the explanation and find it fishy. But they can't really say why and how.

They need to be introduced to the concept of economic rent and rent extraction through asymmetrical power in the kind of political system that prevails in the liberal countries. It's not government of the people, by the people and for the people but rather government on the principle that those who own the country should govern the country, assuming trickle down.

In other words, its about the interaction of class, power, and wealth, giving rise to privilege; whereas just deserts depends on equal opportunity. The issue really boils down to the key social fundamentals of fairness and free riding that are found even in the insect world among ants and bees.

Uneasy Money
Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be
David Glasner | Economist at the Federal Trade Commission

Lars P. Syll — New study shows marginal productivity theory has a ‘negligible’ link to reality

Those damn empirics keep getting in the way of theory. 

Mainstream economics, with its technologically determined marginal productivity theory, seems to be difficult to reconcile with reality. Although card-carrying neoclassical apologetics like Greg Mankiw want to recall John Bates Clark’s (1899) argument that marginal productivity results in an ethically just distribution, that is not something – even if it were true – we could confirm empirically, since it is impossible realiter to separate out what is the marginal contribution of any factor of production. The hypothetical ceteris paribus addition of only one factor in a production process is often heard of in textbooks, but never seen in reality.

When reading mainstream economists like Mankiw who argue for the ‘just desert’ of the 0.1 %, one gets a strong feeling that they are ultimately trying to argue that a market economy is some kind of moral free zone where, if left undisturbed, people get what they ‘deserve.’ To most social scientists that probably smacks more of being an evasive action trying to explain away a very disturbing structural ‘regime shift’ that has taken place in our societies. A shift that has very little to do with ‘stochastic returns to education.’ Those were in place also 30 or 40 years ago. At that time they meant that perhaps a top corporate manager earned 10–20 times more than ‘ordinary’ people earned. Today it means that they earn 100–200 times more than ‘ordinary’ people earn. A question of education? Hardly. It is probably more a question of greed and a lost sense of a common project of building a sustainable society.

Conventional economics as apologetics for ideology.

New study shows marginal productivity theory has a ‘negligible’ link to reality
Lars P. Syll | Professor, Malmo University

Evan Soltas — Inequality and Productivity

Yet, on the other hand, it seems to make the key question -- are workers being compensated for rising productivity? -- intractable.

Why? Because it's hard to assess the productivity of individual workers. The whole debate over CEO pay, for example, has foundered on this issue. You can see that in Josh Bivens and Larry Mishel's recent paper on CEO pay, in which they concede that the evidence that CEO pay is untethered to productivity must be suggestive and circumstantial.

What then is the basis for claim that workers are paid what they are worth based on their marginal productivity?

Evan Soltas

Inequality and Productivity