Say I work for a widget-making company. I make widgets.
Now, when I say widgets, I probably mean that I "add value" somewhere in the widget-creating process. It's not like there's a pile of widget ingredients on a shelf and I roll up to the shelf, pull some down, and then an hour later there's a widget that was produced entirely by my own agency. Widgets roll down the line. By the time they get to me, maybe they're like 55% done. My job is to use a few fancy, expensive, purpose-built tools to get them to 58% done.
How much should I be paid? To rephrase, let's ask: how valuable am I? Am I responsible for 3% of the value of each widget created? Well, without the fancy tools (which I probably can't afford and probably wouldn't have invented), I wouldn't be able to add that 3% value. Without the people before me, I wouldn't have had a half-a-widget to which I COULD add value. Without the people after me, we'd have 58% of a widget. 58% of a widget probably sells on the open market for about as much as 0% of a widget does. Without the process engineers that planned out the line, none of the people before or after me would have anything to do. If we want to keep going, without the lawyers and the accountants and compliance engineers and such, our widget-making enterprise might get shut down by the SEC, or the EPA, or some other regulatory agency.
Taken in isolation, I'd produce nearly zero value. Without the remaining infrastructure of my widget-making company, it's unlikely that I'd be able to produce even a single widget, ever. If widgets were baskets or clay pots or or knit sweaters, maybe I could. If they were medical devices though, or cars or iphones or smoke detectors or cans of pringles, I couldn't. Not even one.
This near-zero value isn't just particular to me though. The worker to my left and the worker to the right are in the same boat. The process engineer wouldn't be too useful if there weren't someone sitting right in my seat, executing his or her carefully crafted plan for taking a widget from 55 to 58.
Let's throw a curveball though: what happens when the company buys a newer, fancier, even more expensive, purpose-built widget-crafting tool? I used to be able to move 10 widgets an hour through my station, but now I can move 20. Then the process engineer finds a way to combine my step with the step of the guy after me without it taking any extra time. So now I can move 40 widgets!
Am I four times as valuable? In an 8 hour shift, I add four times as much value! I went from 30 widget-percentage-points an hour to 120! On the other hand, my increase in productivity came from a tool which I didn't invent and couldn't afford, and a process improvement that wasn't my idea.
And what about the guy to my right? I'm doing his job now, so he's not even around any more. In the beginning, he and I looked like we were both equally productive, but now I'm four times as productive and he's not productive at all? What happened here?
At the end of the day, my company is more productive. If similar developments hit the rest of the line, we'll be making four times more widgets without fewer workers. From our CEO's perspective, we invested in capital (the tools) and R&D (the process engineers). The increased throughput is the return on that investment.
That's great econ 101 stuff right there, but where does that leave me when it comes time to discuss a raise? And what about the dude to my right who's now unemployed? This sounds like a great story if you're a process engineer at a widget company. Or a process engineer at the company that makes our fancy, expensive, purpose-built tools. Or the CEO, who gets a bonus due to the increased throughput. Or a shareholder, who gets a dividend from the increased profitability of the company. Or a widget consumer, who probably pays less for widgets now. It's not a great story though, for a widget maker like me or my right-hand dude.
What happens to my wage as a result of the productivity increase? Well, it probably goes down. Right-hand dude is unemployed now. He'd like my job if he could get it. Increased competition from all the right-hand dudes out there drives labor supply up, which drives wages down.
So it's a great time for widgets. Widgets are more popular than ever. We're selling more than ever. Widget companies are more profitable than ever. But it's a terrible time for widget value-adders like me.
That's the kind of situation that leads to graphs like these. The sort of thing that just makes you want to... occupy something. It just feels unjust.
What's the just solution though? If I get a magic wand, what would I do?
Make my company re-hire right hand man? For what purpose?
Make my company pay me more? How much more? Why? Why do I deserve more when right hand man is the unemployed one?
Should the government tax our widget company more and pay the money to the unemployed? How much more? Why?
What do the widget company and/or the government owe me or right hand man? On what basis would that valuation be calculated?