The Price of Everything - Eduardo Porter [55]
These pay gaps are probably due in part to discrimination. But much of the difference in pay has to do with how physical traits signal productivity improvements. Studies in Sweden found that taller people are smarter and stronger and have better social skills because they were healthier and better nourished as children. Being taller, they had higher self-esteem. The short are simply less productive. And productivity is what bosses go to the labor market to buy.
Then there is competition among workers for work. Those given to nostalgia like to reminisce about a kinder, gentler labor market, where wages weren’t so precisely calibrated to skills and employers cared that their workers had a decent standard of living. Early in the twentieth century, firms like Sears and Eastman Kodak created mini-welfare states for their workers in an attempt to foster labor stability and keep unions out of their plants and stores.
The Eastman Kodak Company was famous for taking photography from the professional studio to the corner drugstore. (Its slogan—“You press the button. We do the rest”). But founder George Eastman was also an innovator in industrial relations. Kodak offered a performance bonus to workers as far back as 1899. By 1929, six years before Roosevelt signed Social Security and the National Labor Relations Act into law, it had profit sharing, a fund to compensate injured workers, retirement bonuses and a pension plan, accident insurance, and sickness benefits. After Eastman committed suicide in 1932 by shooting himself in the heart, the obituary in the New York Times applauded his “advanced ideas in the field of personal industrial relations.”
Other pioneers tried to deploy pay as an incentive. Facing low worker morale and high turnover on the production line, in January 1914 Henry Ford raised wages to five dollars a day, doubling at a stroke most workers’ pay. It worked, apparently. Job seekers formed a line around Ford’s shop. The journalist O. J. Abell wrote at the time that after the pay hike Ford was churning out 15 percent more cars a day with 14 percent fewer workers. Henry Ford later observed: “The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made.” Gradually, the rest of the car industry followed. By 1928, wages in the auto industry were already about 40 percent higher than at other manufacturers. And this was before the United Auto Workers union had placed its stamp on the industry.
But the soft, paternalistic corporations of a century ago are not that different from their descendants. The critical difference today is that companies have cheaper options. And they can no longer afford the generosity of the corporate leviathans of the early twentieth century, which relied on a unique feature of American capitalism of the time: monopoly profits. As a dominant company in a new industry with high barriers to entry, Eastman Kodak had a near monopoly over photographic film. Ford also enjoyed fat profits unheard of in the cutthroat competitive environment of today. Today, multinational companies scour the globe seeking cheap labor and low taxes, abundant raw materials, and proximity to consumers. And competition is ruthless.
Princeton economists Alan Blinder, a former vice chairman of the Federal Reserve, and Alan Krueger, deputy Treasury secretary in the Obama administration, estimated that about a quarter of the jobs performed in the United States are “offshorable”—meaning they could be done by cheaper workers overseas taking advantage of new information technology and telecommunications networks. Computers have also replaced workers in a range of tasks, in the corporate suite or on the factory floor. Technology has enabled new players to tap markets once thought impenetrable. The steel mills along America’s rust belt suffered not just because of cheap imported steel. The minimills in the South that made steel from scrap metal contributed at least as much to the demise of the nation’s integrated mills as foreign rivals.
These economic