Wages of Stagnation

Lately, there has been a big debate going on among Democrats about why workers aren't outraged by their economic condition, and therefore more hostile to Republican economic policies and more sympathetic to Democratic policies.

On the surface, it would appear that workers should be in open revolt. According to the Bureau of Labor Statistics, the average worker is no better off today than he was seven years ago in real terms. In August 2006, his average weekly earnings were $275.49. In August 1999, they were $275.61 (both in constant 1982 dollars).

Census Bureau data confirm this trend. According to recently released information, median annual earnings for men fell to $41,386 in 2005 from $43,158 in 2003 (in 2005 dollars), despite steady economic growth. Male earnings in 2005 were lower than in every year since 1997. Female earnings also fell in 2005 to $31,858 from $32,285 a year earlier and were lower than in any year since 2000.

Looking at the broadest measure of economic well-being, median household income, we also see flatness. In 2005, the median income -- the point at which half of households are above and half are below -- was $46,326. This was up from the levels in 2002, 2003 and 2004, but below those registered from 1998 to 2001. Median household income peaked in 1999 at $47,671 (in 2005 dollars) and fell every year thereafter until 2005's small uptick.

There is no simple explanation for worker passivity in the face of income stagnation. One argument is that labor union membership has fallen sharply over the last generation and, consequently, workers have no organizational mechanism through which to bargain for higher wages or protest wage stagnation politically. In 2005, labor union membership was down to just 7.8 percent of private sector workers, from 24.2 percent in 1973.

Another possibility is that workers have been so beaten down by layoffs and give-backs in recent years that they are just grateful to have jobs at all, even if their pay stinks. And because of declining health coverage by employers, those lucky enough to have health insurance may feel compelled to hold onto such jobs. If they switch to another job, they may get higher pay but lose their health benefits in the process.

Indeed, the rising cost of health benefits is a key reason for the flatness of wages. From the point of view of employers, their total labor costs have risen sharply. But all of the increase has gone into benefits, with nothing left over to raise wages. Workers may not like this fact, but accept its reality.

According to the BLS, wages and salaries have fallen from 72.6 percent of total compensation in 2000 to 70 percent in June of this year. At the same time, health benefits have risen from 5.9 percent of compensation to 7.7 percent.

Still another explanation is that the changing demographics of the population have eased the transition to an economy with slower wage growth. Many baby boomers have just seen the last of their children finish college and leave home. Suddenly, they have had a huge increase in their discretionary income, as the enormous costs of tuition and child care that they have borne for decades have now disappeared. They may not be any better off in terms of their family income, but they feel a lot better off financially.

Finally, despite wage and income stagnation at the macro level, people continue to move up out of the working class into the middle and upper classes. According to the Census Bureau, the percentage of all households with an income below $25,000 per year (in 2005 dollars) fell to 27.1 percent last year, from 27.6 percent in 2004. In 1995, 28.9 percent fell into this income class. In 1985, the percentage was 30.5 percent. In 1975m it was 33.1 percent.

At the same time, the percentage of households that are considered well-to-do -- those with an income above $75,000 (in 2005 dollars) -- rose to 28.3 percent last year, from 27.9 percent in 2004. In 1995, only 24.4 percent of households had that much income, up from 20.2 percent in 1985 and 14 percent in 1975.

In short, despite all the talk about the rich getting richer at the expense of the poor, the fact is that the percentage of households with low incomes has fallen and the percentage of those with high incomes has risen. This is perhaps the main reason why Democrats have had trouble getting traction on the income issue -- there are fewer people in the income class to which they historically have directed their message.

The more people there are in the $75,000-plus income category, the more people there are who are receptive to the Republican message of low taxes.

Long term interest rates have been falling for five months and are still at historically low levels. The cost of housing takes a smaller chunk of our budget today than it did a generation ago.

Compared to incomes, housing prices are outrageous. They are only affordable through exotic, interest only loans. Property appreciation of 30% per year is not an indication of low cost of housing. It has gotten to the point where people can't move. If they move, their wages haven't kept up with rising house prices so they can't afford a new place, even with the equity they have in their current home. Of you are a 1st time buyer, you will have a very hard time.

Is that why our household net worth is at record levels and has almost doubled during the last ten years?

That's net worth on paper only and has home equity as the biggest driver. Increasing home values is not a wealth producing industry. Manufacturing and adding value to products is where wealth is created.

Compared to incomes, housing prices are outrageous.

I realize that's a popular sentiment but feeling don't help much when trying to understand what's really going on out there.

Expat-Panama has already crunched the numbers and made the comparison. Given that our homes and incomes are larger today, it's clear that homes are more affordable now than they were in 1978.

Originally posted with back up here.

Even the libs at the NY Times had to report the truth on this issue.

Twenty Years Later, Buying a House Is Less of a Bite

From the article:

Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company.

The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent."

They are only affordable through exotic, interest only loans.

More feelings. The fact is that 80% of all mortgages are fixed rate mortgages.

Property appreciation of 30% per year is not an indication of low cost of housing.

Where did anyone make that claim?

It has gotten to the point where people can't move.

Nobody's moving?

If they move, their wages haven't kept up with rising house prices so they can't afford a new place, even with the equity they have in their current home

So, if I keep my same job and move from my expensive house in Florida to a small town in South Carolina I won't be able to afford another home and my wages will drop?

Of you are a 1st time buyer, you will have a very hard time.

Is that why home ownership is at an all time high?

That's net worth on paper only and has home equity as the biggest driver.

Oh, really? Have you ever seen the Fed's Flow of Funds report? If you had you'd know that homeowner equity only accounts for about 21% of our total household net worth. We own a lot of liquid assets.

Flow of Funds (page 110)

Increasing home values is not a wealth producing industry.

All that demand for housing hasn't created any wealth? All that money I made owning builder stocks from 2001-2005 was imaginary? The equity I banked when I sold a home in 2003 didn't really help me accumulate wealth?

Manufacturing and adding value to products is where wealth is created.

The service industry creates no wealth? Do you have a source you can link us to that proves this bizarre claim?

except the Indians and Chinese are getting those jobs now. US job growth is in services and government, health care, education, etc.

the christian science monitor just did a story talking about how, given the current environment of jobs being created, the US send TOO MANY people to college these days. and its true, I've been talking about that for years. you don't need college to hold most of the jobs the US economy is creating - we are becoming a nation of college educated retail sales clerks, food service workers, government workers, etc.

so tell me again how "knowledge jobs are our future", if the general consensus is that college isn't worth it for an increasing number of young americans?

of course, the BLS would never compile or release these statistics - but I would love to see the rate of "underemployment" amongst college degreed persons - how many of them actually find employment in the field for which they received a degree? I'd bet you that number is far higher than the "4.7% unemployment" rate.

your trend #2 is changing now - more and more, I see households with more then two wage earners. extended families are making a comeback, because it takes 3,4,5 workers in the service industries to make ends meet. I see the new families moving into long island - forget two working parents, that was already the norm years ago. now its working parents, plus an adult child that works, a sister/aunt or brother/uncle in the household, a grandparent bringing in social security or pension money.

sure, there is a "bubble" out there of americans entering retirement now, who worked when wages and pensions were "fat" in the US, and those well heeled seniors are living it up. but right behind them, we have a demographic time bomb headed towards retirement. a time bomb of corporate workers who are seeing pension and retirement benefits stripped away by US corporations at an alarming rate (I am one of them), and who are not going to have anywhere near the retirement experience of americans who are current 60+ years of age. I'll be lucky to avoid working at McDonalds in my "golden years" at the rate I'm going.

well first off, I'm living through part of this - so I see it everyday on the job, or when I meet my former tech co-workers who are now at Lowes. so you won't be able to convince me that the reality I see everyday - isn't really happening.

are you saying the christian science monitor article is totally unsourced:

http://www.csmonitor.com/2006/0925/p09s01-coop.html

"In reality, although we may have entered the so-called "knowledge economy," the true backbone of the economy will continue to consist of low- and medium-skilled jobs. Take a look at the Bureau of Labor Statistics's 10 fastest growing occupations between 2004 and 2014, and you'll find that six of the 10 professions do not require a four-year degree, and four of these call for no academic degree at all."

"We currently find many college graduates employed as waiters, cashiers, healthcare aides, and in other jobs that don't require any special background. Expanding college access will just mean more young people with college debts doing low-paid work."

I've been saying this stuff for years.

I never said it was. What I said is that most low-skilled workers are people who live paycheck to paycheck and who do not receive regular wage increases. These workers are extremely reluctant to agitate for more money out of fear of being fired and replaced by a lower-paid foreign worker (legal or illegal). Thus they live in fear of watching their children go without.

The real irony is that nine times out ten it is bad management that leads a company to financial disaster, not bad labor. In most cases, a failed business gets run into the ground by its owners and managers, not its workers; after all, who makes the decisions that lead to success or failure? MANAGEMENT, that's who. And when the business falls down, the same owners and managers who crashed the company float safely to Earth on their golden parachutes; meanwhile, the poor saps who trusted the geniuses with the big salaries to keep the business solvent end up on the street.

I believe it is immoral to cause a human being to live in fear when an alternative exists. The alternative is to treat employees as human BEINGS, not human RESOURCES. Our family business employs many low-skilled people, and, although they grouse a good deal about conditions (as do all workers everywhere), its workers are in general extremely loyal, responsible, and honest. Those who complain are very careful not to let things get out of hand out of fear of easy replacement, but as a matter of fact our folks have never fired anyone who was doing the job they were being paid to do no matter how disrespectful, snippy, loudmouthed, or ungrateful they have been. Our family business pays for good work, not good attitude. Too bad more businessses don't follow that policy!

Of course, unlike most capitalist enterprises, our family business pays its workers the maximum wage which it can afford while remaining solvent, which is why it has such loyal employees. Those of our family who own and/or manage the company make significantly less per year than others in similar positions in the industry, but the simple fact is that our folks don't care. We all do all right and none of us has ever missed a meal bcause the family biz pays its workers a few bucks more than the competition does. The workers at the company see how frugally our folks live and it motivates them to work hard for them and with them; they know our folks don't consider them to be cattle, and they reciprocate by giving the company their best.

(I might also mention that a good many of the employees of our family business are ex-cons, homeless people, elderly poor folk, and others who are considered unemployable "damaged goods" by other so-called Christian businesspeople. Well, our folks do not profess to be good Christians, but to them even ex-cons, biker mamas, and grouchy old farts are human beings who deserve to be treated with respect as workers.)

I'd like to also point out that employee theft and laziness at our folks' business is nearly nonexistent. Bosses and owners who penny-pinch their workers are the ones with the worst employee theft/sabotage/work ethic problems; frankly, I am more sympathetic to employees who steal from miserly bosses than I am to their employers, and I say that as a member of a business-owning family. If rooting for Bob Cratchit over Ebenezer Scrooge makes me a communist, then long live the revolution. If preferring the barely-solvent but human Bailey Building & Loan to the highly-profitable but monstrous Potter's Bank makes me a softy, then that's fine, too.

Market forces must be acknowledged, of course, but when it comes to matters of basic human dignity there are concerns that transcend the market. Human beings are not "human resources" and must never be treated as mere disposable cogs in an owner's money-making machine. The moral businessperson does not allow his or her employyes to suffer in fear of suddenly bekng thrown onto the streets; instead, he pays his or her workers as much as he or she can afford, not as little as the law lets one get away with, and is genuinely concerned about their employees as people. An moral employer is attentive to the needs, problems, and complaints of his or her workers, and is loathe to fire anyone except for in the most grevious of circumstances. I am proud to say our folks are moral employers, and I say that as one who has spent a good deal of time working for them myself (at the lowest wage level, I might add!) Immoral businesspersons who treat their people like robots, pay them as little as they can get away with, and fire them at the drop of a hat deserve every bit of hell they get in return.

I'm not trying to brag here. I have nothing to do with the running of our family business; in fact, my own career is in an entirely different field. But over the years I have worked for our folks in every capacity, from shit-shoveler to management, and I am very proud of them and the way they run their business. They'll never get rich doing it, but getting rich wasn't their goal when they started the company — making a living was. This they have done, and done admirably.

Sorry to rant at you; this topic is a pet peeve of mine.

"Non ligabis os bovis terentis in area fruges tuas" - Deuteronomy 25:4

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