Fordism | Work in Progress

Walmart made headlines recently by announcing it is raising its base wage rate to $9 per hour (going to $10 per hour in 2016). In response, Gary Silverman of The Financial Times suggests that “Walmart stirs hopes of a Fordist revival,” referring to Henry Ford’s famous implementation of a $5 day in 1914 – double the going rate at the time. Similarly, Paul Krugman, Princeton economist and New York Times columnist, argues that Walmart’s “wage hike seems to reflect the same forces that led to” rising real wages and declining inequality for nearly three decades after the Second World War.

While the comparison between Walmart and Ford is apt in some respects, unfortunately, the broader institutional context of today’s postindustrial, globalized, financialized economy is far different from that of the post-WWII years. As a result, the move by Wal-Mart is unlikely to signal a broad reversal of the current trajectory of the American labor market, which is characterized by stagnating wages and rising inequality.

Total national income can be divided into two halves: the wage share and the profit share. As sociologist Tali Kristal showed in a 2010 article in American Sociological Review, the wage share of national income has declined since the 1980s in the Anglo-Saxon countries, Continental Europe, and even Scandinavia. On average across 16 OECD countries, “labor’s share declined by almost 9 percentage points since the early 1980s, from 73 percent in 1980 to 64 percent in 2005.”

Sophisticated statistical research by heterodox macroeconomists – those who work outside of the mainstream based on theories developed by Marx, Keynes and Polish macroeconomist Michael Kalecki – has found that declining wage shares lead to lower GDP growth. In other words, if more national income was shifted from profits to wages, GDP growth would improve.

Where such a relationship holds true, growth is said to be “wage-led” – reducing the wage share generates slower growth; increasing the wage share would improve growth. If a reduction in the wage share did not result in reduced growth, then growth is “profit led,” meaning that investment demand offsets any decline associated with the reduced wage share.

A new report for the International Labor Organization has now shown that the G20 countries – which account for 80% of Gross World Product – as a whole are wage-led. In short, planet earth is wage-led.

In this post I briefly elaborate how these findings relate to the sociology of work before turning to explain the Kaleckian macro models in a bit more detail.