LONDON - In describing recent economic history as The Inglorious Years, French economist Daniel Cohen’s title refers primarily to a problem that is also examined in the economist Jan Eeckhout’s book, ‘The Profit Paradox.’ That problem, as Eeckhout puts it, is “wage stagnation and extreme wage inequality.” Over the past half-century, the situation for workers in most rich countries has deteriorated on average, setting this era apart from the 30 glorious years (les trente glorieuses) after World War II, when Western Europeans, Canadians, and Americans enjoyed a near-miraculous period of sustained growth, including broad-based growth in real wages and higher living standards.
What can these authors add to the mountain of analyses churned out in recent years showing how workers have missed out on the benefits of the huge (mainly digital) technology-driven productivity gains of the past 30 years? Part of the answer lies in Eeckhout’s insight that more is going on here than labor losing out to capital. Even owners of mainstream firms have lost out in relative terms. The gains have accrued instead to the “few capital owners” closest to giant firms’ surging profits, whose share of total value added ballooned to 15 percent in 2019 from 3 percent in 1980.
Eeckhout enlivens this general analysis with specific examples, offering firm-specific illustrations of the aggregate profit numbers. Pfizer’s profit-to-payroll ratio, e.g., rose to 210 percent in 2019 from 41 percent in 1980. For both Apple and Facebook, that ratio is now over 300 percent. Eeckhout includes striking human stories that bring home the reality of today’s labor market. A woman named Erin, for example, is supposedly a “senior technical adviser,” and yet she makes just US$12 per hour before taxes working for a firm in New Mexico to which Apple has outsourced client-support services.
The main value of Eeckhout’s book lies not so much iThe content herein is subject to copyright by Project Syndicate. All rights reserved. The content of the services is owned or licensed to The Yuan. The copying or storing of any content for anything other than personal use is expressly prohibited without prior written permission from The Yuan, or the copyright holder identified in the copyright notice contained in the content.