ASRXXX10.1177/0003122413481351American Sociological ReviewKristal 4813512013 American Sociological Review 78(3) 361 –389 The Capitalist Machine: © American Sociological Association 2013 DOI: 10.1177/0003122413481351 Computerization, Workers’ http://asr.sagepub.com Power, and the Decline in Labor’s Share within U.S. Industries Tali Kristala Abstract This article addresses an important trend in contemporary income inequality—a decline in labor’s share of national income and a rise in capitalists’ profits share. Since the late 1970s, labor’s share declined by 6 percent across the U.S. private sector. As I will show, this overall decline was due to a large decline (5 to 14 percent) in construction, manufacturing, and transportation combined with an increase, albeit small (2 to 5 percent), in labor’s share within finance and services industries. To explain the overall decline and the diverse trends across industries, I argue that the main factor leading to the decline in labor’s share was the erosion in workers’ positional power, and this erosion was partly an outcome of class- biased technological change, namely computerization that favored employers over most employees. I combine data from several sources to test for the independent effects of workers’ positional power indicators (i.e., unionization, capital concentration, import penetration, and unemployment) and the direct and indirect effects of computer technology on changes in labor’s share within 43 nonagricultural private industries and 451 manufacturing industries between 1969 and 2007. Results from error correction models with fixed-effect estimators support the study’s arguments. Keywords computerization, income inequality, labor unions, labor’s share Capitalists’ profits play a crucial role in the modern capitalist economies. To fill this process of social stratification. Yet inequality lacuna in inequality research, I analyze research largely neglects the dynamics of income inequality between capitalists’ profits national income distribution between capital- and workers’ income in U.S. industries over ists’ profits and workers’ compensation, and the past four decades, a period in which focuses overwhelmingly on distributional income inequality surged. issues within workers. Even studies on income inequality between social classes or aUniversity of Haifa on top income shares tend to identify the capitalist class as a subset of the self- Corresponding Author: Tali Kristal, Department of Sociology and employed. This approach ignores the fact that Anthropology, University of Haifa, Haifa 31905, corporations, not individual business owners, Israel dominate production for private profit in E-mail: [email protected] 362 American Sociological Review 78(3) Challenging the long-standing economic This article makes a further contribution to assumption regarding the constancy of labor’s the study of income inequality by clarifying share of national income, which Keynes the question regarding the mechanisms (1939:49) called “a bit of a miracle,” recent through which computerization affects studies show that over time, workers and in equality. Economic studies assume that the capitalists do not benefit similarly from the negative relations between computers and fruits of economic growth. Across rich coun- labor’s share are an outcome of a single tries, labor’s share increased in the aftermath mechanism, specifically the increase in of World War II. Similar to the case with earn- machine productivity relative to workers’ ings inequality, however, the past three dec- productivity. Consequently, previous studies ades have seen a reverse long-term trend have (1) overlooked the structurally antago- toward increasing inequality between capital- nistic social relations between capitalists and ists’ profits and workers’ compensation (Blan- workers and (2) not resolved the puzzle, chard 1997; Kristal 2010). The main argument which this study reveals, regarding the decline for rising income inequality, put forward by of labor’s share only in some industries (con- economists, is that computerization increases struction, manufacturing, and transportation), the productivity of machines and skilled despite the massive flow of computer tech- workers; through the invisible hand of the nologies across all industries. To redress these market, this has led to rising inequality shortcomings, I argue for an additional mech- between capitalists and workers as well as anism whereby the diffusion of computer among workers (Acemoglu 1998, 2002). technology across workplaces has translated Sociologists, by contrast, tend to emphasize into a decline in labor’s share through exacer- social and power relations as driving inequal- bated union decline; therefore, the term ity, both among workers (Alderson and “class-biased technological change” may best Nielsen 2002; Kristal and Cohen 2007, 2012; describe the relations between computeriza- Moller, Alderson, and Nielsen 2009; Moller tion and labor’s share. et al. 2003; Sakamoto and Kim 2010; Volscho I will first describe labor’s share at the and Kelly 2012; Western and Rosenfeld 2011) aggregate country level and its diverse trends and between capitalists and workers (Korpi across industrial sectors over the postwar 2002; Kristal 2010, 2013; Lin and Tomaskovic- period. The downward trend in labor’s share Devey forthcoming). is very evident in European countries but In this article I draw on stratification theo- relatively moderate in the United States, lead- ries that stress power relations in the study of ing to speculation on whether the United income inequality to explain inequality States is an exceptional case (Dew-Becker between capitalists’ profits and workers’ com- and Gordon 2005). To disclose the dynamics pensation. I argue that the degree of income of labor’s share in the United States, I employ inequality is primarily a function of classes’ several operational measures for labor’s share positional power, and that both sides utilize at the aggregate country level, demonstrating their relative strength to bargain over a larger that since the late 1970s labor’s share declined slice of the national income pie. The longitu- by 6 percent over the entire U.S. private sec- dinal data on U.S. industries that I use in this tor. I then provide a first description of labor’s study allow for a fruitful contribution to the share across broad industries over the post- debate over the causes of rising inequality. World War II period. My basic assumption is These data make it possible to conduct a first that measuring labor’s share in the aggregate empirical test for the effects of computer economy probably masks important shifts technologies and indicators for classes’ posi- among sectors and industries, which may tional power (i.e., unionization, unemploy- either offset or amplify changes in the overall ment, capital concentration, and import size of labor’s share. In fact, based on indus- penetration) on labor’s share. try data, Solow (1958:619) argued that the Kristal 363 long-standing neoclassical economic assump- financial and nonfinancial firms, interest, and tion regarding the constancy of labor’s share rent. By taking into account all income is at least partially a “mirage.” The first part sources, national accounts data allow us to of the article reinforces Solow’s proposition measure income inequality between aggre- by showing a clear and large decline in labor’s gate categories of the working and capitalist share within construction, manufacturing, and classes. transportation industries, and an increase, In a stylized Marxian manner, I define albeit small, within finance and services. capitalists as people who own and control the I then introduce the class positional power capital used in production, and workers as all approach to labor’s share and explain how employees excluded from such ownership computerization and the erosion of workers’ and control. This leads to measuring income bargaining power relate to the decline in inequality between workers and capitalists by labor’s share. In the first part of the findings, the respective shares of national income I analyze the effects of indicators for techno- going to labor (wages, salaries, and fringe logical change and workers’ bargaining power benefits) versus capital (gross firms’ profits, on changes in labor’s share in 43 nonagricul- interest, dividends, and rent).1 Using national tural private industries and 451 manufactur- accounts data to measure income inequality ing industries between 1969 and 2007. In the between capitalists and workers likely con- second part of the findings I go on to test ceals differentiations and divisions within whether computerization affects wages as it classes. Moreover, methodological and con- affects labor’s share. Specifically, I test ceptual difficulties are associated with using whether computerization increased skilled national accounts data to assess the amount of workers’ wages more than less-skilled work- capital income obtained by workers or the ers’ wages and more than capitalists’ profits, part that derived from financial profits. Nev- as claimed by the skill-biased technological ertheless, national accounts data clearly por- change (SBTC) hypothesis for rising wage tray a central dimension of inequality in the inequality. I conclude that over the past 30 polarized class relations of capitalism. years, (1) institutional changes contributed One possible criticism of analyzing the more to rising inequality by eroding most distribution of national