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Cody H's avatar

I think an important heuristic this isn't touching on (at least directly) is that success for people in the labor force is dictated by the same golden rule that dictates success for firms in the market - irreplaceability / inimitability.

I don't think discussing wages through lens of skilled vs. non-skilled is very productive, for the exact reasons you've highlighted (i.e., it offends people). I think a generally translatable rule is that labor that is harder to replace is going to earn higher wages than labor that is easier to replace.

That framework has important implications separate from what you've laid out above, too. Take for example the worker you described who learns a highly specialized programming language - his 'skills' are going to be difficult for a firm to replace, which could give him significant negotiating leverage with his current Company.

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Dusty Jamieson's avatar

What an excellent post Brian. Maybe you could comment on my understanding of this mechanism? Supply and demand factor in of course, but I think we're barking up the wrong tree when we use the word "skills" - it's too subjective on its own. I find it easier and more to the point to use the word "productive". Productivity, in the economic sense, is the value that a worker provides to his or her employer. Usually, more "skilled" workers "produce" more widgets. But the mechanism for creating the higher remuneration, in a non-unionized environment especially, is the productivity that a specific worker provides for the company.

This is the first mechanism we should look at, and then we examine the supply vs demand dynamic which further hones the final wage. Where the supply vs demand dynamic is most prevalent is where lower productivity workers are in short supply, which drives the wages up, sometimes past the marginal productivity that works most prominently to produce the wage levels of more productive workers.

Viewing the problem from a productivity perspective, the stagnation in wages for less-productive workers* makes perfect sense, as the demand for this kind of labour has plummeted, while the supply of less-productive workers has not.

*To be clear, less-productive worker refers to the lower value-added output of these workers as judged by the market – you and I in other words – and not to how hard these people work. In fact, with the rise in minimum wages and the sharp drop in demand for their services, less-productive workers have to work harder than ever.

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