decline of the middle class - inevitable?

[PregnantChad]

As best as I can tell, the decline of the middle class, whose frustrations in the Rust Belt decided the recent election, has been ongoing since the late 1970s.  Was this inevitable due to the forces of automation and globalization?

Or did the business-friendly political climate make it worse (e.g., the decline of unions in the 1980s, free trade in the 1990s)?  On the other hand, I'm reading in some places that the protectionist policies the Trump administration would implement (e.g., high tariffs) could backfire and make the expected upcoming recession worse.  Which type of policies best serve the middle class?

Thanks.

[Associate Justice PiT]

     Globalization has tended to increase the supply of labor and drive down wages. If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it? The effect of outsourcing is a long-term depression of wages.

[Beet]

Nothing is 'inevitable', except physical forces outside of people's control, such as the rotation of earth on its axis, and so on.

[ag]

I am still to see any serious evidence of such a decline.

[PregnantChad]

I am still to see any serious evidence of such a decline.

Said Hillary's crack staff circa October 15 when they were flying over Youngstown to get to a fundraiser.

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

[Associate Justice PiT]

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

     At the least, government shouldn't be making the problem worse. Right now, the system of H-1B visas is a major factor contributing to the elimination of middle-class American jobs. We get Tech leaders telling Congress they need more such visas, and the politicians heel. It shouldn't have to be this way.

[Person Man]

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

     At the least, government shouldn't be making the problem worse. Right now, the system of H-1B visas is a major factor contributing to the elimination of middle-class American jobs. We get Tech leaders telling Congress they need more such visas, and the politicians heel. It shouldn't have to be this way.

The question is then if these people will then hire more CS, EE, ME, and Chem E majors because of this. These companies might choose to expatriate. Has He address tariffs/taxes on companies that try to expatriate?

[ag]

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

     At the least, government shouldn't be making the problem worse. Right now, the system of H-1B visas is a major factor contributing to the elimination of middle-class American jobs. We get Tech leaders telling Congress they need more such visas, and the politicians heel. It shouldn't have to be this way.

You realize that a lot of the H1-B jobs have no reason to be done in the US at all? Right now this is a way to compete for talent internationally: if you are good, you go to the US, and being in the US is, in a way, a perk on which the competition is run. You cut the H1-B visas, companies would continue hiring the same talent, but keep them abroad. Furthermore, of course, the prospect of such visas is, in part, what attracts good students to US universities. You take all that away - other universities will pick up the slack.

BTW, universities also heavily depend on H1-B visas: you cut them off, and US academic lead will shrink pretty fast. What you are going to do is give a huge boost to Indian and Chinese academics. BTW, as a foreign-based academic, who has been actively hiring on the US market, but finding the competition with US wages nearly impossible, I would, actually, be happy about this: we would be able to hire top people at a fraction of the current cost! I mean, my only concern is, they will fire me, since I now could be replaced by better guys at lower cost.  It would be like a ban on foreign players in a sports league - coaches in poorer countries would simply salivate at the prospect.

With things like R&D, there is, potentially, even more geographic mobility than with physical production. What has held those jobs in the US is the attractiveness of living in America for the top-notch people. You take that away, and within a generation all that activity will take place abroad. And there is nothing you can do about it - there will be no physical asset to tax on the border.

[PregnantChad]

You realize that a lot of the H1-B jobs have no reason to be done in the US at all?

That's the sort of thing that worries me.  I live and work in a state with many highly educated and skilled people, and companies like mine still sponsor H1B's.  I guess the alternative is total outsourcing.

In the former case, it's "just" suppressed compensation and inflated unemployment/underemployment.  In the latter case, it's either move far away, maybe to a developing country, or develop other marketable skills that hopefully won't eventually be outsourced, or get used to a reduced standard of living.  Just not sure what can be done about that.  But the idea of punishing corporations until they bring factories back to Ohio is just fantasy.

[Tartarus Sauce]

One way to potentially stymie outsourcing is to raise the labor standards of the countries corporations are outsourcing to. That was one of the measures outlined in the TPP, which would have made it more expensive for multinational corporations to invest in countries like China, and perhaps second guess moving their operations overseas. Of course with TPP dead on arrival, policymakers are more likely to cut labor standards here in the U.S. to compensate. That might bring back jobs, but it won't be jobs satisfying a standard of living middle America is clamoring for.

[ag]

You realize that a lot of the H1-B jobs have no reason to be done in the US at all?

That's the sort of thing that worries me.  I live and work in a state with many highly educated and skilled people, and companies like mine still sponsor H1B's.  I guess the alternative is total outsourcing.

In the former case, it's "just" suppressed compensation and inflated unemployment/underemployment.  In the latter case, it's either move far away, maybe to a developing country, or develop other marketable skills that hopefully won't eventually be outsourced, or get used to a reduced standard of living.  Just not sure what can be done about that.  But the idea of punishing corporations until they bring factories back to Ohio is just fantasy.

Learn Chinese. That way you can always move where the jobs are

And if you prefer to speak English for the rest of your life, while doing interesting work, you better hope Trump and his kind are not around too long.

There is no reason to get used to a "reduced standard of living" - it has definitely not been reduced in Jersey in recent past. The only way it will be reduced, is if Trump destroys the US economy, as he has promised to do. Fight that.

Because if he is successful, it will not be "outsourcing". It will be a permanent move of high-skilled jobs outside of the US. Perhaps, in the future, some foreign companies will be "outsourcing" some of those functions to their American partners. But the brains will move out.

[Person Man]

You realize that a lot of the H1-B jobs have no reason to be done in the US at all?

That's the sort of thing that worries me.  I live and work in a state with many highly educated and skilled people, and companies like mine still sponsor H1B's.  I guess the alternative is total outsourcing.

In the former case, it's "just" suppressed compensation and inflated unemployment/underemployment.  In the latter case, it's either move far away, maybe to a developing country, or develop other marketable skills that hopefully won't eventually be outsourced, or get used to a reduced standard of living.  Just not sure what can be done about that.  But the idea of punishing corporations until they bring factories back to Ohio is just fantasy.

Learn Chinese. That way you can always move where the jobs are

And if you prefer to speak English for the rest of your life, while doing interesting work, you better hope Trump and his kind are not around too long.

There is no reason to get used to a "reduced standard of living" - it has definitely not been reduced in Jersey in recent past. The only way it will be reduced, is if Trump destroys the US economy, as he has promised to do. Fight that.

Because if he is successful, it will not be "outsourcing". It will be a permanent move of high-skilled jobs outside of the US. Perhaps, in the future, some foreign companies will be "outsourcing" some of those functions to their American partners. But the brains will move out.

China would be good. What about Canada? Are there liberal policies on immigration enough to shield them from Dumpster's policies?
India would be good too but that country is run by dumbasses though English is spoken there.

[DC Al Fine]

You realize that a lot of the H1-B jobs have no reason to be done in the US at all?

That's the sort of thing that worries me.  I live and work in a state with many highly educated and skilled people, and companies like mine still sponsor H1B's.  I guess the alternative is total outsourcing.

In the former case, it's "just" suppressed compensation and inflated unemployment/underemployment.  In the latter case, it's either move far away, maybe to a developing country, or develop other marketable skills that hopefully won't eventually be outsourced, or get used to a reduced standard of living.  Just not sure what can be done about that.  But the idea of punishing corporations until they bring factories back to Ohio is just fantasy.

Learn Chinese. That way you can always move where the jobs are

And if you prefer to speak English for the rest of your life, while doing interesting work, you better hope Trump and his kind are not around too long.

There is no reason to get used to a "reduced standard of living" - it has definitely not been reduced in Jersey in recent past. The only way it will be reduced, is if Trump destroys the US economy, as he has promised to do. Fight that.

Because if he is successful, it will not be "outsourcing". It will be a permanent move of high-skilled jobs outside of the US. Perhaps, in the future, some foreign companies will be "outsourcing" some of those functions to their American partners. But the brains will move out.

China would be good. What about Canada? Are there liberal policies on immigration enough to shield them from Dumpster's policies?
India would be good too but that country is run by dumbasses though English is spoken there.

Liberal immigration policies? Heh. Canada's immigration laws are surprisingly restrictive.

[Ban my account ffs!]

Again, part of the reason the middle class has declined is because many have actually moved up into the upper-middle class and the wealthy.


Yes, some have fallen down, and that is a problem, but the fact is that more have moved up than down.

Do you have statistics to back this up?

The middle class is a fluid concept.  Standard of living increases brought by technological improvement don't count for "moving into the upper middle class"... because those benefits are often tailored for every income level.  Like smart phones or more efficient refrigerators.

But I'd like to see this stat that shows that more people are moving up when real incomes have been stagnant or in decline.

[Associate Justice PiT]

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

     At the least, government shouldn't be making the problem worse. Right now, the system of H-1B visas is a major factor contributing to the elimination of middle-class American jobs. We get Tech leaders telling Congress they need more such visas, and the politicians heel. It shouldn't have to be this way.

You realize that a lot of the H1-B jobs have no reason to be done in the US at all? Right now this is a way to compete for talent internationally: if you are good, you go to the US, and being in the US is, in a way, a perk on which the competition is run. You cut the H1-B visas, companies would continue hiring the same talent, but keep them abroad. Furthermore, of course, the prospect of such visas is, in part, what attracts good students to US universities. You take all that away - other universities will pick up the slack.

BTW, universities also heavily depend on H1-B visas: you cut them off, and US academic lead will shrink pretty fast. What you are going to do is give a huge boost to Indian and Chinese academics. BTW, as a foreign-based academic, who has been actively hiring on the US market, but finding the competition with US wages nearly impossible, I would, actually, be happy about this: we would be able to hire top people at a fraction of the current cost! I mean, my only concern is, they will fire me, since I now could be replaced by better guys at lower cost.  It would be like a ban on foreign players in a sports league - coaches in poorer countries would simply salivate at the prospect.

With things like R&D, there is, potentially, even more geographic mobility than with physical production. What has held those jobs in the US is the attractiveness of living in America for the top-notch people. You take that away, and within a generation all that activity will take place abroad. And there is nothing you can do about it - there will be no physical asset to tax on the border.

     If the jobs aren't going to be done by Americans anyway, but rather farmed out to other countries where the cost is much lower, what reason is there to care if the people come here or not?

[Ban my account ffs!]

So...

The first graph shows that the very rich and very poor have both increased substantially at the expense of the middle.

The 2nd one looks more convincing, however it really shows that all the gains occurred prior to 2000.  That was 16 years ago now.  Meanwhile the proportion of lower middle and poor have not improved.

It's safe to say that for most posting on this forum, they do not remember a time when the poor were actually moving up.  And it's been so long now that people think it'll never happen again.

[Intell]

It's inevitable if you're a free trader, thatcherite.

[Person Man]

Who do you think benefits politically from the rise of the UMC?

[ag]

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

     At the least, government shouldn't be making the problem worse. Right now, the system of H-1B visas is a major factor contributing to the elimination of middle-class American jobs. We get Tech leaders telling Congress they need more such visas, and the politicians heel. It shouldn't have to be this way.

You realize that a lot of the H1-B jobs have no reason to be done in the US at all? Right now this is a way to compete for talent internationally: if you are good, you go to the US, and being in the US is, in a way, a perk on which the competition is run. You cut the H1-B visas, companies would continue hiring the same talent, but keep them abroad. Furthermore, of course, the prospect of such visas is, in part, what attracts good students to US universities. You take all that away - other universities will pick up the slack.

BTW, universities also heavily depend on H1-B visas: you cut them off, and US academic lead will shrink pretty fast. What you are going to do is give a huge boost to Indian and Chinese academics. BTW, as a foreign-based academic, who has been actively hiring on the US market, but finding the competition with US wages nearly impossible, I would, actually, be happy about this: we would be able to hire top people at a fraction of the current cost! I mean, my only concern is, they will fire me, since I now could be replaced by better guys at lower cost.  It would be like a ban on foreign players in a sports league - coaches in poorer countries would simply salivate at the prospect.

With things like R&D, there is, potentially, even more geographic mobility than with physical production. What has held those jobs in the US is the attractiveness of living in America for the top-notch people. You take that away, and within a generation all that activity will take place abroad. And there is nothing you can do about it - there will be no physical asset to tax on the border.

     If the jobs aren't going to be done by Americans anyway, but rather farmed out to other countries where the cost is much lower, what reason is there to care if the people come here or not?

The presence of these sorts of jobs generates other jobs: in fact, in many cases, a single H1-B job holder generates multiple US-based jobs. Of course, if H1-B visas are not available, forcing the movement of those sort of occupations outside the US, those other jobs would follow. Being a Mexican (i.e., a citizen of one country where such jobs would go), I can only welcome your decision to destroy US-based employment. Harder to see, why you would want it.

[Associate Justice PiT]

     If you can pay someone in the third-world $20k/yr to do a job, why would you pay an American $60k/yr to do it?

I have a white collar job that could eventually be off-shored and this thought occurs to me pretty often.  My knee-jerk reaction is protectionism, but I can't tell whether that is more harmful than a laissez-faire approach.  Putting aside whether gov't should intervene to protect American workers, would it even make a difference if it tried to - either today or decades ago when this was first happening?

     At the least, government shouldn't be making the problem worse. Right now, the system of H-1B visas is a major factor contributing to the elimination of middle-class American jobs. We get Tech leaders telling Congress they need more such visas, and the politicians heel. It shouldn't have to be this way.

You realize that a lot of the H1-B jobs have no reason to be done in the US at all? Right now this is a way to compete for talent internationally: if you are good, you go to the US, and being in the US is, in a way, a perk on which the competition is run. You cut the H1-B visas, companies would continue hiring the same talent, but keep them abroad. Furthermore, of course, the prospect of such visas is, in part, what attracts good students to US universities. You take all that away - other universities will pick up the slack.

BTW, universities also heavily depend on H1-B visas: you cut them off, and US academic lead will shrink pretty fast. What you are going to do is give a huge boost to Indian and Chinese academics. BTW, as a foreign-based academic, who has been actively hiring on the US market, but finding the competition with US wages nearly impossible, I would, actually, be happy about this: we would be able to hire top people at a fraction of the current cost! I mean, my only concern is, they will fire me, since I now could be replaced by better guys at lower cost.  It would be like a ban on foreign players in a sports league - coaches in poorer countries would simply salivate at the prospect.

With things like R&D, there is, potentially, even more geographic mobility than with physical production. What has held those jobs in the US is the attractiveness of living in America for the top-notch people. You take that away, and within a generation all that activity will take place abroad. And there is nothing you can do about it - there will be no physical asset to tax on the border.

     If the jobs aren't going to be done by Americans anyway, but rather farmed out to other countries where the cost is much lower, what reason is there to care if the people come here or not?

The presence of these sorts of jobs generates other jobs: in fact, in many cases, a single H1-B job holder generates multiple US-based jobs. Of course, if H1-B visas are not available, forcing the movement of those sort of occupations outside the US, those other jobs would follow. Being a Mexican (i.e., a citizen of one country where such jobs would go), I can only welcome your decision to destroy US-based employment. Harder to see, why you would want it.

     If it gets the illegal immigrants to repatriate, then the big question is why wouldn't I want it?

     Seriously though, the fundamental concern lies in the potential of work visas to reduce wages. The more insidious side of that coin is outsourcing, and a harder one to deal with as you yourself suggest. When you can hire someone from outside of the country to do the work for much less than what you would hire an American to do it, the incentive is clear to reduce domestic employment. UCSF has figured out they can save $30 million by eliminating one-fifth of their American IT workforce.

[ag]

     Seriously though, the fundamental concern lies in the potential of work visas to reduce wages. The more insidious side of that coin is outsourcing, and a harder one to deal with as you yourself suggest. When you can hire someone from outside of the country to do the work for much less than what you would hire an American to do it, the incentive is clear to reduce domestic employment. UCSF has figured out they can save $30 million by eliminating one-fifth of their American IT workforce.

If you are going to look at this way, I have no doubt you will wind up earning and consuming less and less for the rest of your life. This is not a zero-sum game: US openness has resulted in huge positive spillovers for American workers, especially in areas like IT. IT has very little reason to be done in the US to begin with: unless, that is, you can utilize the economies of scale that come from concentrating such employment in one place. US happens (or happened) to be attractive as a location to many people worldwide - which has resulted in concentration of this type of jobs there. If you want to ban that concentration, you will loose it, of course: it is not like they are going to be smuggling in programmers through the Arizona desert. But the more difficult you make it for American companies to attract smart people into the US, the more likely they are going to stop being American companies.

You want to kill that chicken - I am sure many other countries will be super happy to pick up the slack. For one, I would argue for creating such a cluster in Mexico: for instance, Guanajuato is a great university town with a good math department and with the largely anglophone San Miguel Allende within commuting distance (as well as the major industrial centers in Leon and Queretaro very close by). It would be a great candidate to attract a few start-ups  Obviously, Mexico would not be the main country benefiting here: if I had to bet, it would be India, Singapore, parts of China, etc., etc.  US will be left with the relatively few people employed in secondary roles: some customer service types, mostly, I guess. This will not happen overnight: for the moment, US still has the concentrations of highly-trained and tallented, as well as the great universities producing more of those. But the more you restrict in-migration (and bash the "liberal" universities), the greater proportion of the new jobs will be created outside of the US, until, eventually, those new centers will start attracting existing US jobs as well.

Actually, your problem will be exacerbated by the already existing protected labor markets. There are two very protected industries within the US: doctors and lawyers. Not only they prevent foreigners from entering (foreign medical grads face humongous difficulties in passing all the requisite exams, residencies, etc., while law is, really, not very portable), they also have cartels, regulating supply (the industries have been allowed to regulate the numbers of entrants). Of course, the natural consequence of all that protection is a highly distorted labor market, in which a fairly small segment of Americans earns extremely high wages (note, also, that these two industries are very different from IT or other technical fields: you can not treat American patients unless you are physically in the US).

This has created a situation, in which the smartest American kids tend to select into those two industries: once they get in, they are guaranteed high wages for the rest of their lives. In contrast, the less regulated markets, like IT, are both lower-paying and  riskier. Relatively few top-notch Americans choose to go into that sort of education: incentives are far too clearly pushing them the other way. Consequently, even among the top graduates of US institutions foreign students tend to dominate.  If you make it harder for foreigners to either enter the US as students or stay after the end of their studies, you will rapidly destroy any comparative advantage American companies face today in these markets: pure and simple, the best and the smartest in the field will be outside the US. Not because Americans are intrinsically dumb (they are not), but because the smart Americans tend to choose other career paths.

[Associate Justice PiT]

     Considering the realities of how job markets work, you're certainly right. Capital cannot be localized within a country. The thing that concerns me is my concern that differing standards of living make equally-talented Americans less competitive than people from many other countries. Even with bringing them into the country through visas, people from poorer countries that are accustomed to living on less will be happy to take jobs for lower salaries than is typical in the United States.

     Naturally, this is supply and demand at work. Right now, tech work (including IT) commands a substantial wage premium. Given the fact that this work does not need to be done in the United States, increasing the labor supply, and particularly through adding people with lesser salary demands, through visas and outsourcing is going to reduce this wage premium.

     Given that we have leaders in the tech sector insisting that more Americans should be going into these fields, it seems to me that there are certain problems with maintaining this while otherwise expanding the pool of labor. People are sold on a romantic vision of what STEM promises, all the while that this vision is being winnowed away. If someone goes into IT, that person should be made aware of what the long-term prospects actually are. Not so many will want to do it then, but there's probably not so much wrong with cutting those folks out.

     I've gotten away from economics at this point, though.

[ag]

    Considering the realities of how job markets work, you're certainly right. ....
...
     Naturally, this is supply and demand at work. Right now, tech work (including IT) commands a substantial wage premium. Given the fact that this work does not need to be done in the United States, increasing the labor supply, and particularly through adding people with lesser salary demands, through visas and outsourcing is going to reduce this wage premium.

  

Considering the realities of how job markets work, you are certainly wrong.

Your problem is, you treat this as a zero-sum game, in which every foreigner entering US is taking a job that would have otherwise gone to an American. And it is simply not true - especially in industries like IT.

To the extent there is any wage premium associated with this market in the US, it is because so many of these jobs are concentrated in that country. They do not have to be concentrated there - it is an accident of history, really. And the consequence of the relative ease with which these people could be brought in from all over the world. You kill that - much of IT employment will move elsewhere. What will be left will be, mostly, lower-level support. And, with a lot of people in the US already trained for that market, the labor market in this industry will be oversupplied for decades to come. So, an initial wage spike during the transition (of course, there will be one - relocation would not be instantaneous) will be followed by a long-term depression. Mid-ranked IT people will be remembering the good old years: they will never again in their lives be earning incomes remotely like they are earning now. A lot of top-level people, of course, will simply move out.

[Associate Justice PiT]

     So, adding to the labor supply for IT will also increase the demand for IT? Or is there some other fashion in which this works out to be a positive-sum game?

[ag]

     So, adding to the labor supply for IT will also increase the demand for IT? Or is there some other fashion in which this works out to be a positive-sum game?

Adding to the labor supply for IT in the US increases the demand for IT in the US.

What makes you surprised?