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The Mystery of Low Wage Growth
BusinessWeek Online ^ | Aug 7,2006 | Michael Mandel

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.


TOPICS: Business/Economy; Foreign Affairs; Government; News/Current Events
KEYWORDS: freetrade; gdp; offshoring; outsourcing; wagedeflation
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To: rwfromkansas
But, for 20 years, perhaps longer, this nation has been transitioning to an information economy

For 20 years, the "free traders" have been hijacking the economy to make it into their vision of a global trading system, destroying sovereignty, stepping all over individual rights, and doing their best to destroy the unique form of government our Founders gave to Americans.

The economy hasn't been 'transitioning'. It has been hijacked. If individual rights and national sovereignty was respected by the "free traders" individuals would be able to make their own decisions about their livelihoods, and not have it negotiated away in internationalist WTO "working groups" and ministerials.
61 posted on 08/10/2006 9:45:32 PM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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To: hedgetrimmer; A. Pole; ReformedBeckite
Reformed, the banking/mortgage industry always seems to insure that they're on the perfumed side of the stick. One can see this by their lobbying efforts enabling then to cut sweet deals for illegal aliens while we citizens continue being put through the torture rack trying to get approvals. Some are apparently more equal than others and that some aren't even loyal to this country.

Cheap labor is an enemy of technological progress as the millenniums of human history has demonstrated.

A.Pole; you know more than anyone that our entire economy has been unbalanced from a production model based on quality to a service-based one dependent on promissory notes (mostly to China). All I hope for is that the Reds find, like Japan during the early 1990s, that they can't collect on what they can ruin.

Hedge, the current environment of wage slaves "benefiting the economy" wouldn't be sustainable without the totally unfair and unasked for onus of our government forcing us to finance their health and welfare needs while putting up with the very real risks of diseases and the criminal culture that follows them.

As the corruption is sinking deep right now I say it's time for outright obnoxious outrage, holding Reps feet to the fire and shouting the enablers down while regarding every accusation of "racism" as a merit badge of patriotism. Our disregard of their smears is the worst thing we can do to them - ridicule back on them is like water on the the Wicked Witch of the West.

62 posted on 08/10/2006 9:45:34 PM PDT by NewRomeTacitus
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To: LS

My employer may or may not be paying more for my health insurance. I don't know about that. All I know is that every year they are taking more out of my check to cover health insurance. Last year it was so bad that even with the standard 2.7% "cost of living increase" in my salary I was actually taking home a little less every two weeks than I took home the year before. The entity that I work for hasn't had money for "merit raises" in years, and the cost of living increases are not keeping up with the cost of living. So, whether my employer pays more for my insurance every year really doesn't matter to me. What matters is how much money I take home on payday.


63 posted on 08/10/2006 9:46:37 PM PDT by TKDietz
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To: hedgetrimmer
Every time you pay $8.00 for an aspirin at a hospital with your insurance, you are funding illegal alien health care.

You might want to read this article

"Hospitals may say we charge everyone the same and technically that is true," but that bill is reduced for large insurance companies, Medicaid and Medicare, Rukavina said. "In general ... hospitals charge the full rack rate for (the uninsured). ... The uninsured are charged -- and expected to pay -- the full charges."

http://www.nwaonline.net/articles/2005/03/20/front/03hospital.txt

The secret is volume discount

64 posted on 08/10/2006 9:49:11 PM PDT by lucysmom
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To: NewRomeTacitus
Hedge, the current environment of wage slaves "benefiting the economy" wouldn't be sustainable without the totally unfair and unasked for onus of our government forcing us to finance their health and welfare needs while putting up with the very real risks of diseases and the criminal culture that follows them.

Absolutely no arguments here.
65 posted on 08/10/2006 9:51:24 PM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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To: Darteaus94025
I don't care if wages are depressed at the lower end.. In fact, as a consumer it probably helps me out. If Walmart had to pay its stockers $13 an hour (which is what the Chicago city council is proposing), then the company would be able to lower its prices.

I'm only concerned about the fact that I'm not making enough money, and I feel that this has nothing to do with what the illegal immigrants are making per hour since I graduated from a four year college and therefore don't compete with them for jobs. IMO, this has more to do with the fact that large companies are A. afraid to invest in younger workers and B. feel that they can screw the naive 20-somethings out of $$$.
66 posted on 08/10/2006 9:52:37 PM PDT by Accygirl
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To: lucysmom; Mase
if an employer hires workers that are not counted and his productivity goes up, it artificially raises productivity overall

D'ya think Mase knows this, but isn't including it in his 'graphs'?
67 posted on 08/10/2006 9:52:51 PM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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To: Accygirl
I don't care if wages are depressed at the lower end.. In fact, as a consumer it probably helps me out.

If you're a citizen, you should care. Unless citizenship got schooled out of you by the "no child left behind" act, you have a duty to your fellow Americans that supersedes your penchant for 'consumerism'.

How can you care more about being a consumer than your duty to your fellow Americans as a citizen? Many of those you just don't care about are putting their lives on the line in Iraq, Afghanistan and elsewhere. Do they do this so you can have cheap prices, or are they doing it to defend the legacy of liberty our Constitution epitomizes? I really am curious to see what you believe.
68 posted on 08/10/2006 9:58:50 PM PDT by hedgetrimmer
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To: Accygirl

C) You don't have a high value skill set.


69 posted on 08/10/2006 10:01:42 PM PDT by durasell (!)
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To: Accygirl
I'm only concerned about the fact that I'm not making enough money

You are not making enough money to pay off the costs of your college education and give you financial security because the "free traders" have you competing with graduates from other countries who don't have to pay for their own education, or pay a whole lot less than you did. If that doesn't cut costs enough, they'll have you compete with workers in other countries, whose expenses are miniscule compared to the cost of living in, and paying taxes in the USA.

Maybe you don't realize this, but your tution paid for illegal aliens to attend your school, it paid for foreign students to be educated here so they could increase competition in the workforce against you, it probably paid to balance the state budget and for very generous pensions for education sector employees and other public employees in your state. It probably paid very little to fund your actual education. Did you know that?
70 posted on 08/10/2006 10:06:13 PM PDT by hedgetrimmer
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To: Accygirl
You're and everyone else not in the cat bird's seat are not making enough money because of the inevitable consequences of the treaties our representatives have signed off on during the last 25 years. That's the price of giving up sovereignty - also known as "nationalism".

Any nation that engineers it's own failure for the sake of it's neighbors' opinions (and the further enrichment of the already rich) is doomed. If the general public doesn't wake up soon we will no longer be the United States of America...just a nation state in a medieval-style conglomerate of feudal financial interest blocs. You might think that the government regards you as a mere number now...
71 posted on 08/10/2006 10:10:46 PM PDT by NewRomeTacitus
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To: hedgetrimmer
As I said in an earlier post, I have little sympathy for American workers unable to get off their butts and either get a college degree, a tech school degree, or some sort of marketable job skills. If the only thing that they're trained to do is work at Walmart, then it's their own fault, not mine. As an American and conservative, it's not my job to prop up slackers, especially when it might affect my ability to pay the rent.

As for the soldiers in Iraq, Afghanistan, etc., if they're coming home to jobs at Target and McDonalds, then perhaps Dubya should fire his Secretary of Veterans Affairs. Instead of working in such dead end jobs, these brave men and women should be encouraged to attend college and have the finest career development/ job placement services at their disposal.
72 posted on 08/10/2006 10:12:07 PM PDT by Accygirl
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To: hedgetrimmer

Actually, foreign students tend to pay full tuition.


73 posted on 08/10/2006 10:13:01 PM PDT by durasell (!)
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To: lucysmom
The uninsured are charged -- and expected to pay -- the full charges."

Only if you're an American citizen. And, just EXPECTING you to pay is not the same as getting the money. Have you ever asked why an aspirin costs $8 at a hospital? You should. If you're not a citizen, EMTALA makes sure you pay nothing, the doctors get nothing, they have to work for free. Did you ever wonder why so many physicians, especially neurosurgeons are leaving the profession? Dr. Madeleine Cosman, Ph.D., ESQ has written extensively about this problem.

The 'volume' discount includes what you pay for illegals. It really is a terrible deal for Americans.

To combat costs, the best doctors are moving to private hospitals, and avoiding insurance companies whenever possible. That way they can actually give good medical care, and every penny you pay goes toward your care, not to finance the care of illegal aliens.
74 posted on 08/10/2006 10:13:28 PM PDT by hedgetrimmer
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To: Mase
I don't know about your chart. All I know is that every year the amount that comes out of my check to cover health insurance premiums goes up. Last year it was so bad that I was actually making less than I was the year before, even though I had gotten the standard 2.7% "cost of living increase" in my salary. My employer may also be paying more for my insurance, but is that putting more money in my pocket? This year after my 2.7% cost of living increase with the increase in health insurance premiums I'm making about $35 more every two weeks than I did last year. That doesn't even cover the increased cost of gasoline, let alone all the other cost of living increases. My employer may very well be paying more for my family insurance coverage, but am I getting better insurance? Heck no. Co-pays are actually increasing slightly even though the premiums are going up. The cost of health insurance and healthcare in general seems to be rising at a rate faster than overall inflation. Total compensation may be increasing but the bottom line is that the money people take home is increasing little to none and fuel costs and other costs are rising at such a pace that we are able to buy less and less with the money we take home.
75 posted on 08/10/2006 10:14:30 PM PDT by TKDietz
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To: Accygirl
As I said in an earlier post, I have little sympathy for American workers unable to get off their butts and either get a college degree

So every learning disabled person should have a degree? Thats lowering the bar somewhat, isn't it?
76 posted on 08/10/2006 10:16:32 PM PDT by hedgetrimmer
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To: durasell
Actually, foreign students tend to pay full tuition.

They shouldn't even be attending land grant colleges, and they should never displace qualified citizens since OUR TAX MONEY pays for public colleges, but don't get me started.
77 posted on 08/10/2006 10:17:59 PM PDT by hedgetrimmer
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To: Accygirl
Dubya should fire his Secretary of Veterans Affairs

What does this mean?
78 posted on 08/10/2006 10:19:06 PM PDT by hedgetrimmer
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To: hedgetrimmer

Should every "learning disabled " ( do you have to be so PC? )
employee make what the CEO or CFO or even what middle management does?


79 posted on 08/10/2006 10:19:53 PM PDT by nopardons
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To: hedgetrimmer

That's a different issue then -- closing the colleges to foreign students.


80 posted on 08/10/2006 10:20:15 PM PDT by durasell (!)
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