Low Wages are Crippling Us

Since posting on the problem of suppressed wages on April 25, I've noticed others have posted on the subject and the problems the US* has created for itself by squeezing the incomes of the middle and working class. Nice to know they got my memo. The paste-up below is from Morgan Housel at Motley Fool. Nice write up, Morgan.

Nearly every recent survey asking Americans about their most pressing concern points to the same answer: a job. People are upset about taxes, politics, deficits, and wars, but until you can clock in five days a week and get a paycheck every other Friday, almost nothing else matters.

The good news: Jobs are starting to come back. About 3.3 million more Americans are working today than were just two years ago. That's great from a social perspective. People are going back to work and regaining dignity. Let's hope it lasts. 

But even if it does, it might not be enough to fuel a strong recovery. What drives the economy isn't necessarily jobs -- it's people's ability to save and spend money. And even though jobs are coming back, average weekly hours and wages, by and large, are not. More people have jobs than did a year or two ago, but we're working fewer hours, for barely more money, than before the recession began.

The average private-sector employee worked 34.3 hours per week this year, according to the Bureau of Labor Statistics. Five years ago, the average workweek was 34.7 hours long. That might sound like a small difference, but it adds up fast. Working more hours means bigger paychecks, which means more saving and spending, which drives economic growth -- just like adding new jobs would. According to UBS economist Sam Coffin, every one-tenth of an hour increase in an average private-sector workweek is the equivalent of adding 320,000 jobs. So if employees were working the same number of hours today as they were five years ago, the increase in spending would be like having an additional 1.3 million people employed -- enough to push the unemployment rate well under 8%. 

Then there are wages. From the end of World War II through the late 1990s, average real (after inflation) hourly earnings increased 1.8% a year, and growth coming out of recessions was usually stronger than that. Not this time. Average real hourly earnings have been essentially flat over the last several years. If wage growth followed its historic growth rate from 2009 through today, the average worker would be earning almost $1 an hour more than they are now. The additional spending that would generate is the equivalent of some 2 million new jobs in today's economy. 

All of this underlines something important about today's jobs market: A disproportionate number of jobs being created are for low-wage, part-time work. According to a recent Bloomberg Briefing, 41% of jobs created since 2010 are from "low-wage" sectors like retail and hospitality, even though such sectors only make up 29% of the total labor force. When government job losses are factored in, 70% of all job gains in the last six months came from low-wage sectors. In March, the notoriously low-wage restaurant and food-service industry added 37,000 of the 120,000 total jobs created for the month. "Administrative and waste services" made up another 15,000 of the total (though month-to-month figures can be murky). 

Measured by the number of jobs alone, our employment recovery has been extraordinarily weak. But, when you factor in the quality and pay of the jobs that are bouncing back, it's been downright abysmal. When it comes to spending and stimulating the economy, creating 3.3 million new jobs today might be the equivalent of several hundred thousand jobs in years past. That's a dark thought when thinking about our future.....

*Actually, it can be problematic to use "country" or "nation" as the unit of analysis; the United States is an abstract concept.The decision to promote policies that benefit the rich is not done by a country, or even a government, but by certain specific individuals within the government and others who support them. Using expressions such as "the US believes" or "the American people demand" are clumsy but often effective simplifications. People who conflate the two parties and claim that "politicians" got us in this mess have a perverse devotion to symmetry and are intellectually lazy.   

US as Third World

On August 25 I had a post on Wall Street and how it bought and captured the institutions originally meant to ensure the public was served. I wrote then, and I say here again, the outsized role of the financial sector and the obscene, short-sighted, and shameless priorities of a reckless investor class, complete with unprecedented lack of accountability and legal liability, are at the heart of America's economic difficulties.

Corporate America's dominance of media and public discourse gloss over the fact that said financial dominance was what conservatives wanted; it was they that pushed through legislation favorable to the wealthy, investors (wealthy or not), and corporations. Conservatives, especially the wealthy variety, have gotten most of what they have wanted; lower taxes, fewer regulations, free movement of capital, lucrative defense contracts, and more.

Crap about how progressive agendas have hurt America are the imaginary domain of the ignorant. Union membership is now at negligible levels, far below similar countries. Labor unions have been weak for the last 30-odd years and getting weaker, just what  conservatives wanted.

New Deal legislation had made banking relatively safe and stable for generations. It was conservatives who said barriers between banking and finance were dated and holding us back. So Republicans in Congress overturned Glass-Steagall. Conservatives got what they wanted. Casino capitalism almost immediately ensued; financial meltdown soon followed. They wanted taxpayers to bail out the banks, and without any meaningful reform to prevent further catastrophes or undeserved enrichment. They got that too.

Wages for most workers have been flat for decades, precisely what conservatives have wanted. The US was a wage leader before Reagan; since then, wages for most have been flat. Conservative policy has been to suppress wages however possible. Conservatives got what they wanted.

The list goes on and on; our nation's richest and most powerful get what they want; favorable legislation, weak regulation, accommodating regulators, court rulings, and a compliant press. This should all be obvious to anyone who pays attention and doesn't walk on their knuckles. But reality struggles for attention in the face of a conservative noise machine that continually distracts voters.

Conservatives have also favored free trade, the mantra, the religion, the chiseled-in-stone gospel of laissez faire economics. It is front and center in the pantheon of conservative political economy, right up there with free markets. And here again, conservatives get what they want.

Conservatives, including Republican party operatives, rarely miss a chance to pimp free trade doctrine. American media usually goes along with Republican talking points. Even if one does find articles that dutifully report massive deficits, and even outsourcing, there are few coherent and visible efforts that explain the ramifications in detail and dare to analyze free trade as class warfare or why a lack of industrial policy is destroying us.

To get just an inkling of how international trade is playing out for the US, have a look at the figures below (Data are from Alan Tonelson's America's Increasingly Third World Trade Profile).

Below are the top ten US trade SURPLUS manufacturing categories for Jan.-June, 2011
(billions of current U.S. dollars)

Waste & scrap materials:  +$15.53
Spacial classification provisions:  +$11.44
Plastics & resins:  +$10.19
Soybeans:  +$8.81
Non-anthracite coal and petroleum gases:  +$7.18
Corn:  +$6.67
Wheat:  +$6.45
Cotton:  +$6.39
Misc. basic organic chemicals:  +$3.87
Non-poultry meat:  +$3.85

Next are the top ten US trade DEFICIT manufacturing categories for Jan.-June, 2011
(billions of current U.S. dollars)

Crude oil & gas:  --$121.13
Autos & light trucks:  --$37.82
Petroleum refinery products:  --$27.62
Computers:  --$22.50
Broadcast & wireless communication. equip.:  --$22.35
Goods returned to Canada & reimported:  --$21.47
Audio & video equipment:  --$15.80
Pharmaceuticals:  --$13.38
Telecommunications hardware:  --$12.72
Computer parts:  --$12.67

Notice a pattern? The US has become a big supplier of scrap and raw materials. Although the data do not show it, this is a substantial reversal of a few decades ago, when the US had a trade surplus in a variety of manufactures, especially high-end, high-tech goods.

Now look at the sectors with the biggest trade deficits. Except for oil, they are all manufactured goods that not long ago were among America's biggest contributors to what we once had, a trade surplus.

There is much to address here. My intention in future posts is to further explore issues in international trade and to demonstrate that America's free-trade ideology and the policies and practices that have resulted, are primarily in the interests of the overclass, have shaped corporate America to serve the interests of that overclass, but are damaging for the country as a whole.

Don't let conservatives tell you the US has a trade deficit because our taxes are too high, wages are too high, unions are too powerful, or regulations are too onerous.

They are wrong on every point.

Wage Suppression Revisited

On March 23, 2011 I posted an article on the results of wage suppression. In it I reviewed academic studies demonstrating the growing gap between productivity growth, which has been substantial, and wage growth, which has been nil. This gap is recent, the direct result of conservative policies favoring corporations. I followed up on April 20, 2011 with another article on why the rich vote Republican. Again, we see clear evidence of a middle class becoming undone by conservative policies.

Below is another depressing snippet of data. It may be hard to see, but it shows an index of labor's share of income (2005=100). There is a fairly steady drift downward starting around 1980, a short-lived upward trend in Clinton's second term, and a significant deterioration throughout Bush the Lesser's eight years. The trend continues in the Obama years. Some discussion and a bigger example of the chart can be found here.

To put this data in very stark terms, go have a look at Overworked America, 12 charts that will make your blood boil.There is a lot there, but one fact underscores what I have been trying to say about wage suppression in the US: wages generally followed productivity increases for most of the 20th century, at least after the New Deal. As productivity increased, so did wages. That is no longer the case, as I show above. If labor had received commensurate wages, average income would not be around $50,000, but $92,000.

Think about that for a moment. Our recession began and continues because our economy heavily depends on consumer spending. If you ever wonder why spending is flat, it is because wages are too.  Where have the productivity gains gone? The 42 grand per worker? To corporate America and the investor class.

Despite this, Republicans never miss a chance to make you think unions are to blame for America's economic illness. It takes a lot of gall to make such demonstrably false statements.

Yet millions of Americans believe them.  And that takes a lot of ignorance.