Was Kelso Right After All?

Most economists have long argued that as productivity goes up, so do wages and, ultimately, employment. Therefore, if technology increases productivity, more people will be working for more money. Since the industrial revolution, this notion has been well confirmed by actual experience.

In recent years, however, productivity has gone up faster than wages, while unemployment and, especially, underemployment, have remained high. Indeed, real wages have been stagnant for over a decade. Meanwhile, returns to capital are increasing rapidly and ownership of productive wealth further concentrating.

Forty years ago, Louis Kelso, the creator of ESOPs, predicted this would happen. Economists said Kelso was daft. Among other failings, they noted, he wasn't even a Ph.D. in economics. Now, a growing number of economists and other prognosticators are rethinking their equations. It may be, these people argue, that technology is now reducing the amount of work that needs to be performed by people (as opposed to capital). Combined with worldwide competition, this is keeping wages down and unemployment up. Hence the coincidence of an economic recovery, no inflation, and a rather dejected economic outlook from most people.

Kelso argued that the only solution was to make more people (not just employees) owners of all this very productive capital. Perhaps his ideas will now begin to get the hearing they deserved decades ago.