Posted on 08/10/2006 5:06:35 PM PDT by hedgetrimmer
Perhaps the oddest and most depressing fact about the U.S. economy these days is the lack of real wage growth. The unemployment rate has been below 5% since December, and productivity growth is still looking strong. Yet wages and salaries, adjusted for inflation, are down for virtually every broad occupational category.
According to the latest numbers from the Bureau of Labor Statistics, average hourly earnings for production and nonsupervisory workers are up by 3.8% over the past year. That may sound halfway decent, but it still lags the 4.3% increase in consumer prices over the same period (see BusinessWeek.com, 8/4/06, "July Jobs: Pretext for a Fed Pause?"). Even managers and professionals are taking the hit: Figures from the BLS show that their real wages have fallen by 1.8% and 1.1%, respectively, over the past year.
This is not what I expected. Historically, real wages rise along with productivity once labor markets are tight enough. Based on the experiences of the 1990s, I was confident that wage growth was going to accelerate once the unemployment rate dropped conclusively below 5%. Still, the wage picture remains bleak.
Key Differences. True, there are some hopeful signs of life. According to the National Association of Colleges & Employers [NACE], "starting salary offers to new college graduates continue to climb." For example, the starting salary for accounting graduates is up 5.5% over the previous year. That's more than the 4.3% rise in consumer prices and well ahead of the 2.6% increase in all prices except food and energy.
But in a lot of fields that NACE tracks, the gains are not enough to keep up with inflation. Initial salary offers for computer science majors are up 1%, marketing majors saw an increase of 0.9%, and liberal arts majors a meager 0.2%, with these teeny increases obliterated by inflation.
But if the phenomenon of falling real wages is clear, the explanation is not. In the 1980s and 1990s, there was a sense that education and the ability to make use of new technology were the key differences between those who did well and those who didn't. Workers who could adapt to the new world of information technology prospered; those who could not saw their wages fall or their jobs disappear.
Low-Wage Competition. Today, neither a college education nor computer literacy is enough to guarantee rising real wages. Some people are obviously doing better than others. Workers in the financial and health-care industries, for example, have seen their real wages drop by less over the past two years than those in retailing. But in no part of the economy are real wages doing well.
There are two alternative explanations for this broad-based problem. The first one has to do with globalization. Competition with low-cost workers in China, India, Eastern Europe, and the rest of the developing world may finally be taking its toll on American workers. With a surplus of labor around the world, real wages will stagnate, while returns to capital will rise.
Now, that's not bad news for everyone. If you own a home, you own a capital asset whose value has soared in recent years. If you have a 401(k) retirement account invested in the stock market, its value, too, has likely gone up since 2003. And if you are a taxpayer -- as most of us are -- it's a plus that state and local pension fund reserves have gone up more than 9%, or $245 billion, over the past year alone, in large part because of stock market gains. This makes it less likely that taxes will have to be hiked in the future to pay for government employee retirement benefits.
If the globalization answer is correct, then in general it's the young who are going to be hit the hardest. They don't have homes or other financial investments, and they have their whole working lives stretching in front of them, so weak real wages hurt them badly. For middle-class Americans aged 50 and higher, the math may be much different, since they likely own their own homes, which have greatly appreciated.
Overestimated? The other explanation for weak real wages is much more gloomy. Remember that wages usually track along with productivity. I hate to even say it, but what if the productivity gains of recent years have been overestimated? The latest revision of gross domestic product, released on July 28, seems to have cut productivity growth in 2004 and 2005 by almost half a percentage point. Further revisions of the statistics could push the number down even more.
No, I haven't swung from my usual optimism into the doom-and-gloom camp. But whatever way you cut it, the stagnation of real wages is not a good thing.
Hmmm.....I see dividends appearing in my brokerage account. And they do go up from year to year.
No, he doesn't. Hes just shares your own blinkered, wrong agenda.
The realestate agents will attempt to sell the house for the old folks, most houses will be sold through loan companys not associated with the local banks, half of the buyers will not be able to pay off the whole loan before they default, but that's ok, the banks will take over the house and sell it to the next young not so bright low wage earner. Eventually the bank might get 50-60 years of house payments out of a small house, that would of normally only brought 20 years of income. The original young wage earners that defaulted move out of the house and into the cheap apartments that are also controlled by the same banks. Hopefully all that money going to these banks will stay in the United States.
Forty years ago, almost no company/employer had pension funds in the market, all that much and there were no 401Ks.That was true thirty years ago, as well.
And the average person was NOT invested in the market, 40 or 30, or even 20 years ago, all that much.
LOL.....I thought it was to BUY GOLD.
Both.
"With a surplus of labor around the world"
Surplus? Just cheaper.
Wages and salaries are a cost. These costs that can be depressed by overseas outsourcing are done so. For labor costs that can't be physically export they are depressed by insourcing illegals, green carders, and guest workers.
The lobbies aren't paying lobbyists and politicians out of ideological reasons. They want to make more money. Ideological cover is needed to get these schemes by the American voter so the money plays the racist card, the "can't stop it" card, etc. The new tactic is to undermine enforcement, create a sense of heightened crisis, and bargain with the American people - we'll give you security if you give us millions of guest workers and their families. That's Bush's "comprehensive" rhetoric.
Do you still beat your wife?
ROTFLOL
Maybe they are stupid.
First thing the factory does is come out with a new piece rate, based on something like 100man hours. They have a few department use it and make sure the departments make good money, After that the rest of the departments will want to get on board, after everybodies on board you add more people(Temp and low wage earners with no benefits) and the wages per hour drops like a rock. You always make sure at least one department is making good money, but in reality you've cut almost everybodies wages big time. The net result is most workers will keep working for you attempting to make that elusive good money, some will quiet, but the main reason the ones that keep working are the ones working for the health insurance. It's basically a big shell game.
All true plus notice Mexico's phraseology of the last 4 tears that comprehensive immigration reform (amnesty of course) is also done for security reasons. That the USA should "know" who is living here. DC hacks also make the same sales pitch from time to time
US CPI excluding food and energy 2.6% in June.
Wage growth 3.8%.
= Real Wage growth 1.2%
US Productivity Index 1.1%
= No mystery, just sloppy business reporting.
Any moron knows that situation won't work. Start moving back to cash---the best way is to tax medical benefits, and you'd see that shift in a heartbeat, as people would take cash and buy MSAs.
In the meantime, you can't ignore that this is a titanic portion of income that MUST be counted in all analysis of income.
A falling tide lowers all boats.
Apologies to Ronald Magnus.
....and competition from workers who sneaked in from Mexico.
Yeah, thats what I thought. Either way the average guy loses
Then you should be able to offer some proof that contradicts my chart. Until then, total compensation for workers is growing much faster than the rate of inflation.
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