Barkley,
There are two aspects to the growing inequality in the US. One is the
success of a small gang of a thousand or so corporate crooks (some indicted,
most not) in diverting about ten per cent of the US economy into their own
pockets under the rubric of "delivering shareholder value".
The other is a change in the balance of the division of income earners along
the line that James Galbraith describes: the K, C and S sectors. In the
K-sector (capital goods and capital pseudo goods such as basic software)
wages are high because of the high value added per worker, the high degree
of individual responsibility, and the high cost to the employer of errors
and under-performance.
At the top of the C-sector Galbraith found defense and auto manufacturing
with wages close to the K-sector because of the high degree of inter-worker
cooperation required. (You will never hear auto executives denigrating
Japanese management, since they have largely adopted it: Ford, GM and
Chrysler all are trying to cut down employee turnover in order to maintain
high quality and productivity, and relatively generous UAW contracts are an
accepted part of this.) The "sunbelt" motor manufacturers have kept the UAW
out, but they pay similar wages because they are just as vulnerable to poor
employee morale and high turnover. Firestone may have receded from the
headlines, but it is clearly a case where substituting docile but
inexperienced new hires for experienced, unionized employees led to a
devastating loss of quality, much loss of life, and the eventual extinction
of the company.
The bottom of the C-sector (textiles, clothing and footwear) merges with the
S-sector (low skilled services such as fast food and hospitality) where
wages sit on the minimum except in periods of very low unemployment.
The major cause of growing income inequality in the USA is the loss of top
C-sector (and a few K-sector) jobs to imports, and the substitution of
S-sector jobs. When $25 per hour auto workers become $5 per hour hamburger
flippers income inequality necessarily rises. Japan (and Germany and France)
have maintained their top C-sector jobs and therefore a relatively equal
income distribution: the un-liberalised labour markets so hated by the WSJ
and its clique make the wholesale shift of western European auto
manufacturing to China and Eastern Europe uneconomic. (New investment may go
to Eastern Europe and China, but the established plants in Western Europe
and Japan stay open.)
Of course, in China and Eastern Europe a manufacturing job can put its
holder into the elite end of the proletariat for a much lower absolute cost
than in the developed countries: a Chinese car worker on $2.50 per hour, or
a Slovakian on $8 per hour, have the same relative position vis a vis
minimum wage workers as a Detroit worker on a UAW contract has to the local
hamburger flippers.
Japan's bilateral trade surplus with the USA is not solely explained by
motor vehicle exports, but I think that they are the largest single
component of it. Every six Japanese cars imported to the USA mean one less
auto worker and one more hamburger flipper in the USA, and the reverse in
Japan. Not all Japanese cars on sale in the US are imports, of course, but
not all American cars are American either. Chrysler in particular drops an
American box on a Mitsubishi drive train and calls the result an American
car.
Economists, orthodox or not, pay far too little attention to the actual
drivers of wage setting, probably because the neoclassical axioms are too
deeply ingrained to ever get properly away from. The axiom of gross
substitution and the single production function seem to be part of most
economists' DNA, asserting themselves whenever they are not consciously
rejected. Motor cars are not hamburgers, and the employment conditions at
an auto plant are not the same as those at McDonald's, and neither are the
wages offered.
JML