Tuesday, October 28, 2014

Employee Wages Increase When Employers Make More Capital Investment

From The Wall Street Journal, "Obama Soaks the Rich, Drowns the Middle Class: The ripple effect of the president’s tax hikes is swamping take-home pay." in Opinion:
...the paradox that even as American businesses today are generally efficient and highly profitable, they aren’t reinvesting in new plants, equipment and technology or hiring more workers at the pace they normally would. Business investment was up last quarter—a hopeful sign—but over the recovery the trend has been sluggish.
***
What does investment have to do with stagnant wages? Everything. As Paul Samuelson, the premiere Keynesian economist who sold more economics textbooks than anyone in history, once explained: “What happens to the wage rate when each person works with more capital goods? Because each worker has more capital to work with, his or her marginal product [or productivity] rises. Therefore, the competitive real wage rises as workers become worth more to capitalists and meet with spirited bidding up of their market wage rates.”

History bears this out. Workers did very well in jobs and rising incomes in the 1960s, 1980s and late 1990s when capital gains and dividend taxes fell.