The War Against Wages

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The War Against Wages

• Presented by Norman Caulfield at the FHSU Times
  Talk Series, November 9, 2006.
• Starting point for this topic is a New York Times
  Op-Ed. Piece of October 6, 2006 by Paul Krugman

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Wages....???...

• Krugman attempts to answer why the Dow Jones
  Industrial Averages are at a record high.
• He suggests that American employers are waging a
  successful war against wages.
• Krugman also writes that growth since early 2000
  has not been exceptional, but after tax corporate
  profits have more than doubled.

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• Krugman adds.what is keyis thatwhile
• Workers productivity is up their wages are not.

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• Thanks to a jump in productivity growth,
  especially after 1995, America's economy has
  outpaced other rich countries' for a decade.
• Its workers now produce over 30 more each hour
  they work than ten years ago.

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• For most of the last century, wages and
  productivity the key measure of the economys
  efficiency have risen together, increasing
  rapidly through the 1950s and 60s and far more
  slowly in the 1970s and 80s.

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• But the median hourly wage for American workers
  has declined 2 percent since 2003, after
  factoring in inflation.
• The drop has been especially notable, according
  to Krugman and others, because productivity the
  amount that an average worker produces in an hour
  and the basic wellspring of a nations living
  standards has risen steadily over the same
  period

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• Worker productivity increased by 16.6 percent
  from 2000 to 2005, while total compensation for
  the median worker rose 7.2 percent, according to
  Labor Department statistics.

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• After 2000, while the pace of productivity growth
  continued to accelerate it seems to have lifted
  fewer boats. After you adjust for inflation, the
  wages of the typical American workerthe one at
  the very middle of the income distributionhave
  risen less than 1 since 2000

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• Despite the big jump in productivity, census data
  reveals that, between 1980 and 2004, real wages
  in manufacturing fell 1 percent, while the real
  income of the richest 1 percentpeople making
  over 277,000 in 2004rose 135 percent.

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• Economists at Goldman Sachs write, The most
  important contributor to higher profit margins
  over the past five years has been a decline in
  labors share of national income.

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• wages and salaries now make up the lowest share
  of the nations gross domestic product since the
  government began recording the data in 1947,
  while corporate profits have climbed to their
  highest share since the 1960s.

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• the current economic expansion has a chance to
  become the first sustained period of economic
  growth since World War II that fails to offer a
  prolonged increase in real wages for most
  workers.

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• A recent report from the US Commerce Department
  indicates that for the first quarter of 2006,
  wages and salaries accounted for only 45 percent
  of the gross domestic product, down from 53.6
  percent at the beginning of the 1970s.

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• This is down from almost 50 percent in the first
  quarter of 2001. Each percentage point now equals
  about 132 billion.

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Affects on Human Capital

• Between 2001 and 2004, the median income of
  Americans with college degrees barely budged,
  rising from 72,300 to 73,000 (after adjusting
  for inflation), according to a Federal Reserve
  survey of consumer finances.

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• In 2004, the top 1 percent of earners a group
  that includes many chief executives received
  11.2 percent of all wage income, up from 8.7
  percent a decade earlier and less than 6 percent
  three decades ago.

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• In 2005, the average CEO in the United States
  earned 262 times the pay of the average worker,
  the second-highest level of this ratio in the 40
  years for which there are data.
• In 2005, a CEO earned more in one workday (there
  are 260 in a year) than an average worker earned
  in 52 weeks.

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• According to the US Census Bureau, the top 20
  percent of American households received 50.4
  percent of all household income in 2005the
  largest since such records began in 1967

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• Alan Greenspan has expressed concerns about
  rising Income inequality.
• Greenspan has frequently raised concerns about
  the long-term trend towards increased income
  inequality and evidence that this trend is
  continuing. 

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• In July 2005 Congressional testimony, for
  example, Greenspan said that there is a really
  serious problem here, as Ive mentioned many
  times before this House committee, in the
  consequent concentration of income that is
  rising. 

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• So it was also notable that Henry Paulson,
  Treasury head, chose to put growing income
  inequality as an issue on his short list - as one
  of the nation's four prominent, long-term
  economic challenges.

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• Ben S. Bernanke, the Federal Reserve chairman,
  warned that the unequal distribution of the
  economys spoils could derail the trade
  liberalization of recent decades.
• Because recent economic changes threaten the
  livelihoods of some workers and the profits of
  some firms, Mr. Bernanke said, policy makers
  must try to ensure that the benefits of global
  economic integration are sufficiently widely
  shared.

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• In an interview in SPIEGEL-ONLINE WITH ECONOMIST
  KENNETH ROGOFF, says
• "Unbridled Capitalism Will Lead to Very Real
  Problems"

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• Rogoff The working population's share of
  national income remained constant for 100 years.
  Workers earned more as economies grew.
• SPIEGEL Is this no longer true?
• Rogoff There has been a noticeable decline in
  the labor factor in all wealthy countries in the
  past 20 years. The rich are getting richer, but
  those at the lower end aren't moving ahead as
  quickly as the capitalists.

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• Rogoff If workers share of growth doesn't
  increase, this could be a potential cause of
  social tension worldwide. The point is that so
  far attempts to reverse this trend in the US have
  failed

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• Rogoff This unbridled capitalism in the United
  States can't be sustained socially. It leads to
  tensions. If we experience another five years
  like the last five, we will start seeing greater
  social friction.these huge inequalities are not
  a particularly desirable characteristic in our
  society.

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• SPIEGEL Protectionism ...
• Rogoff ... is not a solution. We can't turn back
  the clock. But unbridled capitalism will lead to
  some very real problems. We will see that
  ever-increasing deregulation can lose political
  support among the population in the long term

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Krugman also writes

• Wal-Mart wants to transform its work force from
  20 percent part-time to 40 percent.
• About the 1935 NLRA
• How the 1970s begins rollback campaign of union
  gains
• that government does not protect workers rights.
• Corporations and their friends in office are in
  the drivers seat

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• Wal-Mart USA vs. Wal-Mart China
• Wal-Mart has recently allowed the Chinese
  government to establish branches of the state-run
  All China Federation of Trade Unions (ACFTU) in
  its stores across China.

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• China is currently debating a reform of its labor
  laws which aims to tackle the widening income gap
  and the threat of growing social unrest in the
  countrys rapidly growing economy.

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• The new laws would strengthen safety and
  workplace inspections, force employers to consult
  with workers representatives over significant
  job cuts
• tighten the enforcement of minimum wages and
  provide regulations regarding the payment of
  severance. They may also cut the maximum working
  week and impose higher pay rates for overtime.

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• China seeks to protect workers' rights by
  cracking down on sweatshops and giving labor
  unions real power for first time since it
  introduced market forces in 1980's
• proposed new rules set off battle with American
  and other foreign corporations that are lobbying
  against them by hinting they may build fewer
  factories in China

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• Industry associations such as the American
  Chamber of Commerce in Shanghai, the US-China
  Business Council and the European Union Chamber
  of Commerce in China are actively lobbying
  against the legislation on behalf of the hundreds
  of corporations they represent.

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• These groups claim that the new legislation
  over-regulates the employment relationship and
  will push up the cost of doing business in China.
  They have threatened that foreign corporations
  will pull out of China if it is passed.

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• The new laws underscore government's growing
  concern about widening income gap and threats of
  social unrest, severe side effects of country's
  remarkable growth
• The new laws, which may go into effect as early
  as next May, would apply to all companies in
  China, but its emphasis is on foreign-owned
  companies and suppliers to those companies

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• Kevin Philips, in Wealth and Democracy turns to
  the history of Britain and other leading world
  economic powers to examine the symptoms that
  signaled their declines.
• speculative finance, mounting international debt,
  record wealth, income polarization,
  deindustrialization, disgruntled politics and
  militarism.
• Phillips worries that the growing parallels
  suggest the tide may already be turning for us
  all.

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• John Schmitt, of the Center for Economic and
  Policy Research in Washington, suggests the
  following
• Raising the minimum wage
• creating a workplace climate friendlier to labor
  unions' organizing efforts
• Passage of Employee Free-Choice Act
• Make Medicare available to all employers.
• a "strategic pause" in new free-trade agreements.

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• Comments?
• Questions?