It was the guys who went off to investment banks who were buying the third homes, while the top students were trying to eke out their incomes with an occasional consulting gig.
I’m a little late on this great Calvin Trillin piece, but it accords with my own more specialized memories from grad school. The year I got my PhD (1977), there was a very clear ranking of desirable career paths. The best economics grad students went into academic jobs; the middle went to the Fed or the IMF; the bottom went, poor souls, to Wall Street.
Even then this meant an inverse relationship between academic ranking and income, since new assistant professors were paid only around $15,000, equivalent to a bit more than 50K today. But the prestige differences more than offset the pay differentials, at least as we saw it then. And one thing that’s hard to convey is how boring business seemed in the 1960s and 1970s. (”I’ve got just one word for you: plastics.”)
But even a decade later, it was the guys who went off to investment banks who were buying the third homes, while the top students were trying to eke out their incomes with an occasional consulting gig. And it wasn’t just the money: business stopped being so boring, and was even getting to be fun for some people. The old conviction that the academic life was the ideal definitely began to fray at the edges.
Did the influx of smart people bring on disaster? That’s a longer story. But the change in who went where is utterly real.
Since the emergence of economic science, wage determination, methods of payments and labor productivity have been the discipline’s subject matters. The significance of the subject matters is evident. Classical political economists (Smith, Ricardo and Marx) paid great attention to develop different versions of “labor theory of value” in the 18th and 19th centuries. Notably, Karl Marx developed his “theory of labor value” by inventing the notion of “labor-power”. Labor-power is the commodity sold by worker and defined as socially necessary labor time for production. Marx devoted three chapters (chapter 19 to 22) in his masterpiece, Capital, to analyze “wages”: (1) the transformation of value of labor-power into wages, (2) two contrasting methods of payments (time-wages vs. piece-wages) and (3) national differences of wages. In the three chapters, Marx defined:
Wage: the form in which payment for labor-power is made;
Hourly-wage: the price of a days' labor-power divided by the normal number of hours worked per day;
Time-wages: having defined hourly-wage, time-wages is the natural extension that wages are paid according to labor time expanded in normal hours worked per day. The lengthening of hours worked means the reduction of hourly-wage;
Piece-wage: time time-wages wasn't the only method of payments. Piece-wage, defined as “the normal wage per piece is the daily labor of labor power divided by the number of pieces produced per day under average conditions in one normal working day time”, is another method often used in capitalist mode of production (Brewer, p. 65). Marx argued that piece-wage system can help increase labor productivity and is “the form of wages most in harmony with the capitalist mode of production” (Capital, p.556). Piece-wage reduces the need of superintendence and, as a result, suits appropriately to domestic industries and subletting (subcontracting) of labors.
Although Marx's theory of labor value has been rejected by mainstream economists ssince the “marginalist revolution” in early 20th century, the debate around wages has never ended. Retrospectively, Marx's definition of wage -- by using socially necessary labor time expanded in a working day and used hourly-wage as measurement yardstick -- is still relevant in today's capitalist mode of production. More important, the issue further gains weight in developing countries where large scale factory productions is still prevailing.
As a matter of fact, the longstanding issue across three centuries can be understood from two areas of uncertainties come out from Marx's definitions:
Determination of Wages: In defining wage, the term “normal number of hours worked per day” is used. But to what number of hours worked should be classified as “normal”? For hourly-wage is the wage measurement yardstick, to what level should hourly-wage be “enough” for a worker to live? If wage is not defined through hourly-wage, what are the consequences?
Methods of Payment: Piece-wages is described as the most “harmonious” method of payments in capitalism for it helps increase labor intensity (hence, productivity) and eliminates the need of superintendence. But in what way does piece-wages system increase productivity and reduce superintendence costs in production?
The aforementioned areas of uncertainties have been taken up and encountered one by one by government, economists and labor activists in the last two centuries. First, for wage determination, almost in all countries, the questioning of “normalcy” of number of hours worked in a working day and the “sufficiency” of hourly wage has been the major battlefields between labor and capitalist in the last century. It has engendered series of campaigns of “maximum working hours” and “minimum wage”. In most developed countries, various bargaining mechanisms and legal institutions (such as cross industry or national wide trade unions) have been developed to overcome the issue. Besides, in developed countries like United States and United Kingdom, hourly-wages has been accepted as standard measurement yardstick for minimum wage. However, there is a wide gap between developed and developing countries in these bargaining mechanisms and legal institutions. In particular, in China, where independent trade unions are prohibited to establish, these collective mechanisms and legal institutions are often underdeveloped.
Second, for methods of payments, the issue of uses of time-wages, piece-wages or the mix of them has also been the focal point in the economic discipline in last century. Between the last decade of the 19th century and the beginning decade of the 20th century, piece-wage system has been analyzed by sociologists, industrial relations theorists and even government officials in developed countries. However, at that time, the piece-wages system has reputed so badly as “the sweating system”. Piece-wage system was identified as “problem of modern industries”.
Nevertheless, in the second half of the 20th century, the whole academic atmosphere has changed to favour piece-wage system. It was particularly evident since the rise of neo-classical economists. Neo-classical economists set aside the “sweating” issue and tried to direct the issue to a new language under “efficiency”, “incentive” and “productivity”. The whole new problematic under neo-classical formulation then became: how to increase productivity by using appropriate methods of payments to boost workers' incentives to produce? Under this problematic formulation, time-wages and piece-wages are subject to comparison on productivity basis. Series of studies by correlating productivity output with methods of payments are conducted empirically. Further studies by correlating abilities of workers and productivity outputs were also followed. After these empirical studies, two widespread consensuses, at least in economics and management studies, have reached: First, piece-wage system can boost workers' incentive and hence increase productivity output. Second, workers with high ability (higher productivity rate) would likely choose to work under piece-wage system while less able workers would likely choose time-wage system.
The methods of payments have attracted concerns from economists, governments and labor activists in developing countries. They also find the issue complicated, troublesome and difficult to handle. While developing labor regulations, the uses of piece-wages and the mix of time-wages and piece-wages, in contrast to time-wages, pose great difficulty for government in developing countries to regulate industries by using hourly minimum wage. Labor activists also face difficulties when new discourse from management side arises – it is workers who opt voluntarily to the piece-wages system and who would like to work longer hours a day to earn more money. The new discourse puts workers' interests (that workers would like to work longer hours) and labor activists' demand (that working hours should be reduced in developing countries so as to match the standard in developed countries) in opposition.
So long as we consider development as a process of perfecting social, economic and legal frameworks as well as institutions in developing countries for allowing citizens to have decent quality of lives, the issues of wage determination and methods of payments are relevant to today’s situations in many developing countries.
