> NY Times, July 14, 2005 > How Long Can Workers Tread Water? > By EDUARDO PORTER ... > Mr. Barnes fits snugly into the pattern of America's current economic > expansion. The wages of typical workers are treading water, growing roughly > at the same rate that inflation eats into their buying power. Last week, > the Labor Department reported that average wages for production and > nonsupervisory workers in the private sector, about 75 percent of the labor > force, reached $16.06 an hour in June, just 2.7 percent above the level a > year ago. > > Yet in terms of the aggregate effect on the total economy, that statistic > does not seem to matter much. Workers' wages may be barely keeping up, but > Americans' average incomes are growing briskly - in part, because of growth > in the overall number of jobs, including Mr. Barnes's extra one. But it > also reflects other forms of income, flowing mostly to the more affluent, > which are fueling the consumer spending that has provided a crucial pillar > of support for economic growth over the last three years. > > "You have a lower half of the wage distribution in the United States that > has not experienced any income gains for a long time now," said Barry P. > Bosworth, an economist at the liberal-leaning Brookings Institution. "But > from a macro perspective this doesn't have much impact."...
This is an illusion. As made clear immediately, demand has continued to rise because >corporate profits, professionals' incomes, gains from investments and executive compensation - the kind that frequently comes in the form of stock options - are all surging, supporting healthy gains in the economy.< But there's something else which isn't mentioned. Workers are keeping their spending up not only by moonlighting (etc.) when such jobs are available, but also by getting deeper in debt. The surge of consumer debt in recent years isn't simply based on the stock market and overvalued housing. It's also due to what Bob Pollin calls "necessitous borrowing" because incomes of the working classes are stagnant while the need to spend (to pay for education, health, etc.) continues to rise. Of course, there are limits to how much debt working people can accumulate, so this will eventually stop. In other words, Bosworth may be correct right now, but the problem has been shoved into the future. > ... The skewed nature of the income growth comes as little surprise to most > economists. Reeling from collapsing profits, businesses emerged from the > economy's slump in 2001 with a pronounced aversion to part with money, > instituting spending and hiring freezes and keeping them in place even as > demand recovered. This, of course, was the basis for the "jobless recovery." > These cost controls helped propel a burst of productivity growth and > profitability. Corporate profits jumped 35 percent from 2002 to 2004, as > increases in revenue dropped unhindered to companies' bottom lines. Income > from workers' compensation, including wages and benefits, grew 9.5 percent. > > In the first quarter of 2005 profits grew a further 15 percent, compared > with the period last year, twice the pace of compensation for employees. > And what growth there has been in compensation for workers has mostly > concentrated at the top. At the bottom end, income growth has mainly come > from an increase in employment - not better wages. Government policies also pushed for this skewing of the income distribution. > Robert E. Mellman, an economist at J. P. Morgan, noted that the jumps > recorded in wage income in the last quarter of 2004 and the first quarter > of this year were principally from a flurry of exercised stock options. "It > was profit-related pay, a symptom of high profits," Mr. Mellman said. > > This skewed pattern of income growth readjusted the distribution of the > national pie. After falling to a trough of 8.5 percent in 2001, corporate > profits' share of national income soared to 12.3 percent in the first > quarter of this year, the highest level since the mid-1960's. The share of > income accruing to workers' compensation, on the other hand, fell from 66.2 > percent in 2001 to 63.9 percent in the first quarter of 2005. This has also been the trend since about 1970. > Yet there are signs that the squeeze on labor might be easing as > unemployment has fallen to 5 percent and the job market has tightened, > nudging the pendulum back in workers' favor and giving them a chance to > claw back some income gains. "At the margin, labor could do a little > better," Mr. Mellman said. One problem with this rosy scenario is that (as Alan the G once noted) a 5% unemployment rate has a much greater anti-worker impact than it did, say, 20 years ago. The "cost of job loss" has increased relative to the unemployment rate; for example, you can lose medical insurance along with your job. Unions are also much weaker. That's not to deny that there might be a temporary shortage of labor-power that might cause the end of stagnation some day. I just don't see it in the near future, especially with Alan the G raising interest rates. > ... With increasing competition from cheap labor in poor countries, falling > unemployment in the United States is not giving American workers much > leverage to increase their slice of the income pie, said Robert J. Barbera > of ITG/Hoenig in Rye Brook, N.Y. "I expect labor's share to still be under > pressure," he said. ... -- Jim Devine "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
