Stagnant Wages
I am running out to the AMEX, but I wanted to make sure you read a piece in today's NYT by David Leonhardt: For Many, a Boom That Wasn’t. The entire article is worth reading.
The chart is pretty hard to argue with:
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While I agree that many of the contributing factors leading to this wage stagnation were in place for a long time, I think the librul NYTimes gave President George W. Bush too much of a pass:
"The causes of the wage slowdown have been building for a long time. They have relatively little to do with President Bush or any other individual politician (though it is true that the Bush administration has shown scant interest in addressing the problem)."
As you will note in the links below, these are issues we addressed many years ago. This administration chose a stimulus that was, for better or worse, stock market and CapEx focused. While I am not debating the merits of that choice, the selection of those targets -- versus targeting labor and wages -- was a very conscious, ideological choice.
Thus, the policy results are, not totally, but to a not insignificant degree, the responsibility of the administration that selected them . . .
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Previously:
Stock Market vs the Economy (September 2003) http://bigpicture.typepad.com/comments/2003/09/stock_market_vs.html
Tax Cuts: Stock Market vs the Economy II (October 2003) http://bigpicture.typepad.com/comments/2003/10/tax_cuts_stock_.html
Accelerated Depreciation of Capital Spending (September 2004) http://bigpicture.typepad.com/comments/2004/09/accelerated_dep.html
Source:
For Many, a Boom That Wasn’t
DAVID LEONHARDT
NYT, April 9, 2008
http://www.nytimes.com/2008/04/09/business/09leonhardt.html
Wednesday, April 09, 2008 | 10:43 AM | Permalink
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Comments
Start in 1994 and use real inflation adjustments and you get the potential for torches and pitchforks.
Forgive the rant. I've a dental appointment today. Come to think of it, getting to the truth is like pulling teeth. It hurts!
Posted by: Ross | Apr 9, 2008 10:55:23 AM
This isn't too surprising because, in a sense, "incomes" did shoot up during the expansion. The problem was it was houses, not people, who were providing lots of extra money through methods like cash-out refis and HELOCs. For some of the worst "offenders," their home operated like a second or third breadwinner.
Posted by: southoc | Apr 9, 2008 10:56:25 AM
I would posit that NAFTA in 1993, Fractional Reserve Requiremnt Changes in 1995, Glass-Steagall Being killed in 1999, China's entry into WTO in 2000 might of had a little something to do with our current problems although we could of used all the money blown across the globe with public works projects at home to bring some wage inflation to America. The only problem with that thesis is the 12 to 20 million illegals in this country who undercut wages for Americans. It's tough to have wage inflation when labor is being bid down at every turn by illegal labor.
Posted by: SPECTRE of Deflation | Apr 9, 2008 10:59:58 AM
Asset inflation is a real be-atch when it turns, and we are turning like a spinning top.
Posted by: SPECTRE of Deflation | Apr 9, 2008 11:04:53 AM
Ross, I had forgotten the CPI changes intituted in 1994. I will have to add that one to my list, and thank you for your insight!
Posted by: SPECTRE of Deflation | Apr 9, 2008 11:07:00 AM
Big business was so successful at cleaning out the pockets of Americans, and imbuing them with the manic desire to "consume", that the next innovation - rather than higher wages - was cheaper credit. So cheap credit has been a substitute for higher wages for about 20 years, especially since 2002 or so.
Needing a hook, or plausible reason to extend massive new credit to a population with constrained wages, Big Business invented the Ownership Society. That meant houses for everybody, willy nilly, and cheap credit meant inflating house prices. The came the twin innovations of "tapping your equity" through home refinancing, and HELOC's. In effect, houses became a conduit for consumption.
But to keep profits rising, the business elites were successful in keeping wages down, by throwing the working dog a credit bone. Sorry, no more bones for you, Fido.
Posted by: OldVet | Apr 9, 2008 11:18:39 AM
There is no remedy to this problem. This country has thrown away its true wealth (manufacturing) and now produces only shitty movies and music and worthless financial crap. It's no wonder a lot of the world hates our guts.
Posted by: Tom F. | Apr 9, 2008 11:33:29 AM
"who were providing lots of extra money through methods like cash-out refis and HELOCs."
I guess that was one way of keeping up with the Jones'.
Posted by: Pat G. | Apr 9, 2008 11:33:58 AM
to paraphrase another poster on CR's blog:
"just think in 20 years we can have that $500 back"
What will that be worth then is the scary question...
Ciao
MS
Posted by: michael schumacher | Apr 9, 2008 11:39:03 AM
The emasculation of unions played a huge role--thank St Ronnie's destruction of the air traffic controllers.
Posted by: Mel | Apr 9, 2008 11:43:54 AM
Why doesn't anyone ask about income mobility? A recent study by the US Treasury (http://www.treas.gov/press/releases/hp673.htm) shows workers' ability to move up the income classes is alive and well. Should a $65,000 per year manufacturing worker expect to see between 5-10% income gains per year? At what point should this worker's wages begin to stagnate? I don't ask this sarcastically. Look at the auto industry. Highly educated workers are rewarded with higher wages. We should stress to our children the benefits of a college education instead of bemoaning the loss of manufacturing jobs.
Posted by: Adam | Apr 9, 2008 11:53:55 AM
Adam'
Not everyone can go to college, become an investment professional, and lose billions of dollars. On a more serious note tho, a great number of blue collar jobs, think construction, have gone to illegals. We also have had no public policy initiatives designed to create jobs to replace those lost offshore. We need mature people in the next administration that understand the need for broad based public policy initiatives. There will be no easy answers but the soluition lies in broad based debate, not incompetent boobs making decisions based upon gut feel.
Posted by: larster | Apr 9, 2008 12:13:31 PM
cant blame the NYT. there is no organized intellectual or political opposition to laissez-faire anymore in the US. certainly not the Democratic Party. certainly not the Clintons, who were happy to "feel your pain" while helping Greenspan and Wall St lift our wallets and drive wealth and income inequality to 70-yr extremes. good luck, everybody.
Posted by: scorpio | Apr 9, 2008 12:31:56 PM
From the Census data, the family of 1960 is really not at all the family of 2006. Considering family as a married couple with at least one kid, the number has hardly changed from 23M in 1960 to 26M in 2006. If you could track that specific group, then maybe you could have useful conclusions.
The change in families from 45M(1960) to 77M(2006), means that pretty much the whole addition of 30M is a different family altogether, and is going to skew your results for tracking wages, because the group itself has largely changed.
Posted by: Michael Davis | Apr 9, 2008 12:35:22 PM
I see we are still blaming Clinton....
wow have you no eyes to witness what has happened in the last 8 years????
Clinton was/is no angel but that does not allow neo-cons a free pass (although they certainly think they are entitled to it) to rape, loot, and pillage at will under the premise of "america".
Wake Up....it's both...although one certainly is more responsible for current problems (too many to list)than the other.
Ciao
MS
Posted by: michael schumacher | Apr 9, 2008 12:40:18 PM
Larster,
I completely agree, not everyone can and should go to college. I also agree that this country has an immigration problem it needs to reconcile and there needs to be fundamental education reform. Personally, I don't think it's the publics' (read:government's) job to create jobs. Leave that to the market. The NY Times article suggests increased government spending on infrastructure, which is fine with me. My question is whether those construction workers should be entitled to income increases that the public deems acceptable? Even if the government curbed immigration, should American workers who replace these migrant farm workers expect to be paid $25,000-$30,000 per year? And should we worry when that income stagnates? Like you said, we need broad debate about this issue.
Posted by: Adam | Apr 9, 2008 12:43:31 PM
You folks are such optimists.
Thinking that a change of administration might really change things. Thinking that there are actually "mature people" involved in politics at the national level. Thinking that government actually cares about the poor, middle or wealthy classes.
Everything makes sense once you see that it is all about keeping those tax revenues flowing. Government, government, government. No matter who or which party is running it. And the business of politics skims its portion off the top as interest groups lobby to get a share of those revenues, offensively or defensively.
Posted by: Tom Durff | Apr 9, 2008 1:13:30 PM
Spectre I agree that regulatory changes were certainly part of the problem (and I would add the Telecommunications Act of 1996 and possibly the death of the Fairness Doctrine). But why are you and Adam talking about illegal immigrants? Talking about illegal immigrants misses the entire point - there was a LOT of economic growth in the US over the past 10-15 years. The problem is a little bit went to the top 15%, a lot went to the top 4%, and most went to the top 1%. In 2003 the top 20% took home 50% of all income. Between 1979 and 2005 the top 1% saw an approximately 170% increase in inflation adjusted after-tax income.
To mention illegal immigrants and ignore the massive increase in the wealth of the wealthy is literally looking the exact wrong way. How could illegal immigrants fighting for $9000 a year jobs have more to do with the problem than 15 million a year CEOs or multi-millionaire hedge fund operators and wall street banksters? Jebus do you guys really believe the US needs MORE crappy low paying jobs?
Did you know 2007 goes down as the first year in which share buybacks exceeded profits for an entire year? What might 2008 have looked like if instead of using that money to produce short term pops when CEOs were cashing in options that money had been used to boost the salaries of 80% of the US population? The problem is pretty straight forward - in order for the US economy to expand consumers need to be able buy goods and services from each. With income stagnating (or dropping) for 80% of the population, debt has been used to maintain standards of living in place of income. Unfortunately avoiding massive deflation means either someone keeps lending money to people who will never be able to pay it back or income inequity drops and salaries increase for bottom 80%.
Posted by: Sus Ano | Apr 9, 2008 1:20:55 PM
Old vet hit the nail on the head!
"rape loot and pillage?" That's how my ancestors took over England!
We had/have demand pull inflation. We will now get margin crushing cost push inflation unless you can outsource your plumber, cop, firefighter, teacher, civil servant and banker to Chindia. Come to think of it, there are a few bankers I wouldn't mind seeing outsourced and banished.
Trust when I say labour unrest is only now beginning...
Posted by: Ross | Apr 9, 2008 1:46:27 PM
the high paying middle class jobs are being offshored.
to add insult to injury, the dwindling high pay jobs left in the U.S. are increasingly being taken by H1B / L1 visa holders at a lower wage.
the globalists keep telling us that new, better, higher paying jobs will spring up and replace those lost to globalisation. but they can never tell us what those new jobs are or when we will ever see them. i haven't seen any yet.
Posted by: bob | Apr 9, 2008 1:46:49 PM
Not exactly sure how the "Bush administration" would prop up wages. Could you tell me how Clinton or any other president increased wages?
I'd love to hear what policies you could imagine that would do so. Until then, I'll just assume this is a political rant with no basis in economics.
Posted by: David | Apr 9, 2008 1:50:28 PM
same situation over here in Germany.
we´re in the fourth year of stable growth.
the economy added 1.5m jobs.
BUT: people don´t feel the upturn.
their incomes only grow barely while inflation and taxes are soaring.
the new jobs are paid badly.
latest tactic by the employers is to hire people over staffing firms that they would have hired by their own in the past.
those people do the same qualified work but earn 30% less.
Posted by: GreenAB | Apr 9, 2008 1:54:19 PM
Even if it's true that everything that goes wrong is George Bush's fault, the question is, what is the solution? Do we vote for Obama so that he can "soak the rich"...? The top 1% is already paying about 40% of all income taxes. Is it realistic to think that that percentage can go a lot higher? (I think not).
Posted by: DL | Apr 9, 2008 1:55:11 PM
MS, I'm not blaming Clinton because these changes occurred while the Republicans controlled CONgress, and they could of stepped in to raise Holy Hell but didn't. Rather I'm listing the path that brought us to where we are. Bush did jack concerning China opening it's markets to American Producers when we were is a great position to demand consessions from the ChiComs.
We just can't seem to get away from the political finger pointing even when it should be clear that both groups are at fault. How depressing.
Posted by: SPECTRE of Deflation | Apr 9, 2008 2:01:43 PM
Sus Ano, to ignore illegals stealing jobs and depressing wages is insane. How can I ask my boss for a raise when I know he can fire me and actually pay less to an illegal and that is the reality we have had for years. I agree exec compensation is a huge problem, but you can't have wage inflation when wages are relentlessly being bid down by 12 to 20 million people who shouldn't even be in the workforce. Cause and effect once again!
Posted by: SPECTRE of Deflation | Apr 9, 2008 2:06:48 PM
