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    How Can We Get Companies to Invest More in Low-Wage Workers?
    01 Dec 2020What Do You Think?

    How Can We Get Companies to Invest More in Low-Wage Workers?

    by James Heskett
    Does income inequality hold back economic growth? James Heskett ponders what underlying factors keep low-wage workers down.
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    Construction workers on site

    Inequality in society has been studied from almost every angle.

    Among others, French economist Thomas Piketty has provided ample evidence of trends in inequality, their causes, and their consequences. We’re reminded constantly of the growing compensation gap between senior executives and those in the lower ranks.

    One of the causes may well be inequities in the ability of executives and frontline labor to negotiate compensation for their skills. In particular, the declining power of unions and the stickiness of minimum wage laws are often cited as factors.

    A study released last month by a task force of researchers at the Massachusetts Institute of Technology reminds us again how badly those on the front lines, particularly the men without four-year degrees who make up two-thirds of American workers, have done in relation to others.

    We study such trends because the evidence shows that economic equality fosters economic growth, primarily by encouraging consumption among people who spend a lot and invest modestly. For example, the study concludes that the US pays handsomely for the low growth that comes with income and wealth inequality.

    The MIT-initiated study intended primarily to assess how technology, such as robots and artificial intelligence, impacts work and workers. One conclusion was that technology would change the nature of work, but still leave us with more demand for workers than supply.

    Inequality in income and wealth has been studied more extensively than inequality in job training. And yet the latter may account for much of the former.

    The MIT study forecasts a continuing mismatch between skills needed on the job and training opportunities for those who could provide them. Don’t overlook the self-fulfilling prophecy in this finding. We don’t spend much to train people we pay poorly.

    Among other things, the study recommends empowering unions to close the gap between returns to capital and labor. Proposals include modifying labor laws to support collective bargaining in all types of jobs as well as legislation to increase minimum wages.

    One suggestion of particular interest: changing tax laws to incentivize Companies to spend more on labor versus machines. The study also suggests enacting an employee training tax credit similar to the federal tax credit for research and development.

    How can we close the gap between investments in technology and labor? What do you think?

    References:

    David Autor, David Mindell, and Elisabeth Reynolds, "The Work of the Future: Building Better Jobs in an Age of Intelligent Machines," MIT Task Force on the Work of the Future, November 17, 2020, workofthefuture.mit.edu.

    Thomas Piketty, Capital in the Twenty-First Century, (Cambridge, MA: Harvard University Press, 2014), especially pp. 304-335.


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    James L. Heskett
    James L. Heskett
    UPS Foundation Professor of Business Logistics, Emeritus
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