Real wages are falling at a near-record rate. Yesterday's figures show that they were 6% lower in April than they were in April 2008. This is the biggest five-year drop in real wages since 1921-26, and the second-largest fall since records began in 1855.
This cannot be blamed simply on the recession. As the IFS has pointed out (pdf), real wages rose during the recessions of the early 80s and 90s. Something, then, has changed since then. But what?
Here's a theory. Back in the 70s and 80s, bosses could often not efficiently monitor their workers. To keep pilfering and skiving within tolerable limits they therefore had to pay better than market-clearing wages, to buy goodwill. The upshot was that wages rose even during downturns, because bosses feared that real wage cuts would create discontent and thus increase thieving, insubordination and malingering.
However, as Frederick Guy and Peter Skott have shown, socio-technical change since the 80s such as CCTV, containerization and computerized stock control has made it easier for bosses to monitor workers. Direct oversight means they don't need to worry about buying workers' goodwill. They are instead using the Charles Colson strategy: "When you've got 'em by the balls, their hearts and minds will follow."
Years ago, firms wanted smaller but motivated workforces. Now they can control workers directly, they don't need to worry so much about motivation* and so are content with larger but grumpy workers.
All this has three implications:
1. Talk of "wage rage" misses an important point. At the point of production - to use a quaint Marxian phrase - there is little meaningful rage, because workers can do little to fight falling real wages. (This poses the danger that such rage will find perhaps misdirected political expression, such as in antipathy towards immigrants.)
2. Issues of industrial organization - how firms are organized - have important macroeconomic effects. Macroeconomics cannot be easily studied separately from ind. org. Economists need to look inside the "black box" of industrial structure.
3. You cannot understand economics without understanding power. The fact is that bosses' power has risen and (many) workers' power has declined. In this sense, the rising incomes of the 1% and the fall in real wages for the average worker are two manifestations of the same process.
* except, of course for top-level managers who cannot be directly monitored - hence their rising incomes.