Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

There’s No Place Like CounterPunch

There's no place like CounterPunch, it's just that simple. And as the radical space within the "alternative media"(whatever that means) landscape continues to shrink, sanctuaries such as CounterPunch become all the more crucial for our political, intellectual, and moral survival. Add to that the fact that CounterPunch won't inundate you with ads and corporate propaganda. So it should be clear why CounterPunch needs your support: so it can keep doing what it's been doing for nearly 25 years. As CP Editor, Jeffrey St. Clair, succinctly explained, "We lure you in, and then punch you in the kidneys." Pleasant and true though that may be, the hard-working CP staff is more than just a few grunts greasing the gears of the status quo.

So come on, be a pal, make a tax deductible donation to CounterPunch today to support our annual fund drive, if you have already donated we thank you! If you haven't, do it because you want to. Do it because you know what CounterPunch is worth. Do it because CounterPunch needs you. Every dollar is tax-deductible. (PayPal accepted)

Thank you,
Eric Draitser

What’s Behind the Rise in Income Inequality? Technology or Class Struggle?



Over the past three decades, income inequality has risen in most of the 34 member countries of the Organization for Economic Cooperation and Development. A recent analysis of 22 OECD countries from 1985 to 2013 found that inequality increased in 17 of them (including the US, UK, Canada and Germany), underwent little change in four (Belgium, Netherlands, France, Greece) and declined in only one (Turkey). Over the same period, in the 17 richest countries GDP growth primarily benefitted the top 10% of the population, with the bottom 40% receiving little from a quarter century of growth.

The prevailing explanation for rising inequality – the mainstream economics explanation – is that technology did it. There are no capitalists making investment decisions, no managers making employment decisions and certainly no class struggle. Only technical change, supply and demand. Here I want to make the case for the centrality of class struggle in driving inequality.

According to Harvard economist N. Gregory Mankiw, “Most economists agree that a leading cause [of rising inequality] is skill-biased technological change — the tendency of new technologies to increase the relative demand for skilled workers.”

A more sophisticated and convincing version of the technology story is the “task approach” of MIT economist David Autor and colleagues, which is about the automation of jobs. Computerization is able to easily replace routine jobs, which happen to be those in the middle of the skill distribution (e.g. clerical work and bookkeeping). Both higher-skill jobs (e.g. professionals, managers and technical workers) and lower-skill jobs (e.g. cooks and cleaners) are nonroutine jobs, hence unable to be replaced by automation.

The task version of the technology story well fits the data showing polarization of the job structure into high-wage and low-wage jobs, and it is an important part of the story. But it’s not the most important part of the story.

If technical change is the main driver of income inequality, then either version of the technology explanation predicts that inequality should trend similarly in countries that are comparable in terms of level of economic development, industrial structure and vocational training and educational systems.

To examine this, I’ve plotted income inequality for Canada, the UK and the USA. In addition to having similar industrial structures, these countries are all conventionally understood to be institutionally similar, highly liberal economies with minimal government intervention and only a residual social safety net. Further, they have comparable vocational training and education systems with similar outcomes on a range of indicators.

As a measure of inequality I used the Gini coefficient, in which perfect equality has a value of zero (0) and complete inequality a value of one (1). Using OECD data, the only measure available for all three countries going back to the early 1970s is the Gini for net income (after taxes and transfers). The Gini for gross income would have been better, because it would display the picture produced before government transfers. However, all three countries have similar levels of government income transfers, so the net income measure will suffice.


Source: OECD (Canada and US) and Institute for Fiscal Studies (UK).

The trends in the chart are not easily squared with the prediction of the technology story. From the early 1970s to the present, income inequality has risen more or less continuously in the US, while in Canada it was stable for two decades until around 1994, rising continuously thereafter. In the UK inequality rose faster than the US until 1990, thereafter remaining comparatively stable while it continue to rise in the US.

In a bit more detail, in Canada the trend in inequality was largely flat for 21 years, fluctuating only 0.019 points between from 1976 to 1997. Over the same period, inequality in the US rose more or less continuously, a full 0.062 points. In the UK, inequality rose even faster than in the US in shorter period of time: shooting up 0.101 points in just 13 years between 1978 and 1991.

Compared with Canada, variation from low point to high point in the Gini coefficient over the 21 years from 1976 to 1997 was three times higher in the US and five times higher in the UK.

A more plausible explanation for the variation in income inequality trends across the OECD would refer to the distinct political economy of each country. Because such an explanation requires an in-depth analysis of each country, I focus the remainder of this short article elaborating a class struggle argument for the US case.

The skill-biased technical change story is an extension of human capital theory. According to the latter, wages are determined by the skill levels of individual workers; according to the former, technology increases the productivity of skilled workers, hence increasing demand for them. Human capital theory suggests the rise in low-wage jobs would be driven by a rise in low-skill jobs. However, in a recent academic paper I found that from 1960 to 2005, there was a 15 percent decrease in the low-skill job share of total employment.

In short, compared with previous decades, the contemporary American economy has a lower proportion of low-skill jobs yet a higher proportion of low-wage jobs. What gives?

The US Case

A high corporate profit rate in the 1950s and ‘60s allowed a class compromise: Capital provided secure jobs, rising real wages and opportunities for training and promotion; labor provided industrial peace and cooperation with management leading to continuous productivity improvements. The class compromise was forged within the corporation.

Sociologists have shown that there is no single version of economic rationality. Rather, people come to understand their interests through particular ideologies or cultural logics. In the 1950s and ‘60s, corporate managers understood their business interests to include not simply maximizing shareholder value but also sales growth and market share. The dominant logic of corporate organization was one of vertical integration.

The logic of vertical integration included internalizing employment: the development of internal labor markets and the protection of workers from market forces. As a result, many low-skill jobs in large manufacturing corporations provided security, opportunities for training and promotion, and decent pay through administratively-determined wages (patterned on union contracts in the auto sector).

Vertical integration led to high levels of industry concentration. It has been demonstrated that industry concentration ratios have a remarkably strong negative correlation within inequality, a full –0.8 in the US from 1950 to 2006. Inequality is reduced by high concentra­tion due to the substitution of administrative policies regarding wages for market determination.

However, the profit rate began dropping due to a combination of increasing capital intensity in the economy (pushing the profit rate down) and increasingly high wages associated with the class compromise (cutting into the profit rate). From a postwar high of 26.8 percent in 1951 the corporate profit rate dropped to a low of 9.4 percent in 1982.


Source: BEA data (corporate profit/corporate net capital stock).

Under intensified international competition and a declining profit rate, capital abandoned the class compromise and began to recover profits out of wages.

One of the most well-known outcomes of capital’s assault on labor was deunionization, which played a central role in rising inequality, the former explaining up to one-fifth of the latter in the US.

Equally important, under the rise of the ideology of shareholder value, the dominant logic of employment became one of externalization. This included outsourcing, downsizing, and lean staffing strategies (which reduced opportunities for training and promotion) along with increased use of part-time and temporary employment.

Most important was a return to the market-determination of wages even for full-time, long-term jobs. This provides an explanation for the increase in low-wage work despite a decrease in low-skill work: under the class compromise, low-skill jobs provided decent wages because they were shielded form market forces. Under the ideology of shareholder value and the logic of employment externalization, market competition now forces the wages of low-skill workers down as far as possible.

A central outcome of these measures has been a steady decline in the wage share of total national GDP (leading to a rise in the profit share) from a high of 59.9 percent in 1970 to just 50.7 percent in 2011. This is behind the partial recovery of the profit rate.

In sum, much of the rise in inequality is the result of class struggle, as capitalists and their managers have attempted to recover profits out of wages. This happens through real people making real decisions – what industries and regions to invest in, how to organize the corporation, how to structure employment contracts – not by the impersonal march of technology.

To be sure, there are structural dynamics driving these decisions – the UK and Canada experienced similar declines and rises in profit rates and employment costs, and engaged in similar responses, though with different timings and magnitudes. Nonetheless, it remains the case the decisions of a small class of capitalists are behind rising inequality and stagnating living standards.

Matt Vidal is Senior Lecturer in Work and Organizations at King’s College London, Department of Management. He is editor-in-chief of Work in Progress, a public sociology blog of American Sociological Association, where this article first ran. You can follow Matt on Twitter @ChukkerV.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


October 25, 2016
David Swanson
Halloween Is Coming, Vladimir Putin Isn’t
Hiroyuki Hamada
Fear Laundering: an Elaborate Psychological Diversion and Bid for Power
Priti Gulati Cox
President Obama: Before the Empire Falls, Free Leonard Peltier and Mumia Abu-Jamal
Kathy Deacon
Plus ça Change: Regime Change 1917-1920
Robin Goodman
Appetite for Destruction: America’s War Against Itself
Richard Moser
On Power, Privilege, and Passage: a Letter to My Nephew
Rev. William Alberts
The Epicenter of the Moral Universe is Our Common Humanity, Not Religion
Dan Bacher
Inspector General says Reclamation Wasted $32.2 Million on Klamath irrigators
David Mattson
A Recipe for Killing: the “Trust Us” Argument of State Grizzly Bear Managers
Derek Royden
The Tragedy in Yemen
Ralph Nader
Breaking Through Power: It’s Easier Than We Think
Norman Pollack
Centrist Fascism: Lurching Forward
Guillermo R. Gil
Cell to Cell Communication: On How to Become Governor of Puerto Rico
Mateo Pimentel
You, Me, and the Trolley Make Three
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
October 24, 2016
John Steppling
The Unwoke: Sleepwalking into the Nightmare
Oscar Ortega
Clinton’s Troubling Silence on the Dakota Access Pipeline
Patrick Cockburn
Aleppo vs. Mosul: Media Biases
John Grant
Humanizing Our Militarized Border
Franklin Lamb
US-led Sanctions Targeting Syria Risk Adjudication as War Crimes
Paul Bentley
There Must Be Some Way Out of Here: the Silence of Dylan
Norman Pollack
Militarism: The Elephant in the Room
Patrick Bosold
Dakota Access Oil Pipeline: Invite CEO to Lunch, Go to Jail
Paul Craig Roberts
Was Russia’s Hesitation in Syria a Strategic Mistake?
David Swanson
Of All the Opinions I’ve Heard on Syria
Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future
Rob Urie
Name the Dangerous Candidate
Pepe Escobar
The Aleppo / Mosul Riddle
David Rosen
The War on Drugs is a Racket
Sami Siegelbaum
Once More, the Value of the Humanities
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
Neve Gordon
Israel’s Boycott Hypocrisy
Mark Hand
Of Pipelines and Protest Pens: When the Press Loses Its Shield
Victor Wallis
On the Stealing of U.S. Elections
Michael Hudson
The Return of the Repressed Critique of Rentiers: Veblen in the 21st century Rentier Capitalism
Brian Cloughley
Drumbeats of Anti-Russia Confrontation From Washington to London
Howard Lisnoff
Still Licking Our Wounds and Hoping for Change
Brian Gruber
Iraq: There Is No State
Peter Lee
Trump: We Wish the Problem Was Fascism
Stanley L. Cohen
Equality and Justice for All, It Seems, But Palestinians