Lecture 11
Tuesday, October 9
High Road Capitalism
Announcements for the exam:
1. The exam will be in the regular Bascom room from 11-12:45, Thursday.
2. Review session: Wednesday, 12:00 - 1:15pm in SocSci 5208
An example of a question about the statistics in the book
Average weeks of paid vacation
in the U.S.
Average weeks of paid vacation in
most of Europe
a
1 week
4 weeks
b
1 week
6-8 weeks
c
Just under 4 weeks
2-3 weeks
d
Just under 4 weeks
6-8 weeks
e
6 weeks
6-8 weeks
A Economic Balance sheet for
the United States at the
beginning of the 21st Century
AVERAGE WEEKLY EARNINGS
(IN 2007 dollars, adjusted for inflation)
Annual rate of growth of family income by income group
1947-79 compared to 1979-2005
1947-1979
1979-2005
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
20th
40th
50th
80th
95th
20th
40th
50th
80th
95th
Productivity
Average compensation
Median
compensation
1973
2007
2.5%
Annual Growth Rate
of Productivity and
Compensation
Median Compensation Growth
Productivity Growth
2.0%
1.5%
1.0%
0.5%
0.0%
1975-79
1983-89
1992-2000
2002-2007
Periods of Economic Expansion
Patterns of Job Growth in the US, 1960s versus 1990s
Net change in
number of Jobs
6,000,000
5,000,000
1992-2000
4,000,000
3,000,000
2003-2007
2,000,000
1990-1992
2000-2002
1,000,000
0
-1,000,000
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
-2,000,000
Job quality quintiles
(1 = lowest; 5 = highest)
Figure 9.8. Patterns of Job Growth and Decline, 1990-2007
2
3
4
5
Era of trade deficits
Imports, Exports, and trade balance as a percent of GDP, 1947-2007
What should be done?
“Close off the low road, pave the
high road, and help firms and
workers move from the first to the
second.”
High Road versus Low Road Capitalism
“Low Road”
“High Road”
Basis of firm
competition
primarily price
primarily quality
Nature of
product market
mass goods, homogeneous products
specialized/customized goods
Typical jobs
very specialized
multi-task
skills
low skill: “trained gorilla”
high skill
training
job specific & concrete skills
meta skills transferable across
jobs
Training
process
short job training provided by
employers
life-time training and retraining
provided by employers and
public institutions
Job autonomy
Low
high
hierarchy
rigid differentiation of managers and
workers with many managerial layers
low differentiation of managers
and workers with few layers
wages
relatively low wages
relative high wages
Problems moving from the
low road to the high road
The Relation of skill levels of workers
to profits of firms
Profits
Low
High
Skill Level of Workers in a firm
Two ways to increase profits
deskilling
Profits
Low
Skill
enhancement
High
Skill Level of Workers in a firm
THE TRANSITION TROUGH TRAP
High road
Ability to
compete in
international
competition
Low Road
Transition trough
from low road to
high road
Time
The Training Deficit Trap:
a free riding problem (from lecture 4 & 5)
You provide training
YES
All other
firms provide YES
training
NO
NO
$20,000
$30,000
A B
-$10,000
C D
$0
Training costs = $10,000
Extra Gross Profits with trained workers = $30,000
Net extra profits if you provide training and keep workers = $20,000
Net extra profits if you provide training and workers leave = -$10,000
Competitiveness
The anti-union trap:
The relationship of union strength to competitiveness of firms
Low
High
Strength of worker organization and participation
Competitiveness
The anti-union trap:
The relationship of union strength to competitiveness of firms
The USA
today
Low
High
Strength of worker organization and participation
Competitiveness
The anti-union trap:
The relationship of union strength to competitiveness of firms
The USA
today
Low
High
Strength of worker organization and participation