That’s certainly one of the factors keeping GDP growth low.
Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.
Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.
Not only that, but unemployment remains historically high years after the “recovery”. The question, however, is why wages are remaining stagnant. The WSJ cites three factors:
Economic growth remains sluggish, advancing at a seasonally adjusted annual pace of less than 2% for three straight quarters—below the prerecession average of 3.5%. That effectively has put a lid on inflation, which has been near or below the 2% level the Federal Reserve considers healthy for the economy. With demand for labor low, prices not rising fast and 11.5 million unemployed searching for work, employers aren’t under pressure to raise wages to retain or attract workers.
Emphasis mine. The Fed is happy with the inflation rate. And the administration, despite numerous claims to be focused like a laser beam on “j-0-b-s” has done little if anything to address unemployment or economic growth. Finally, given the uncertainty that regulation and new laws (such as ObamaCare) bring to the table, employers are even less likely to hire until the regulatory and legal dust settles and they have a much better idea of how both effect their business and industry. It’s not about “pressure”. It’s about a lack of incentive.
Businesses are changing how they manage payrolls. Economists at the Federal Reserve Bank of San Francisco in a recent paper said that, in the past, companies cut wages when the economy struggled and raised them amid expansions. But in the past three recessions since 1986—and especially the 2007-2009 downturn—companies minimized wage cuts and instead let workers go to keep remaining workers happy. As a result, to compensate for the wage cuts that never were made, businesses now may be capping wage growth. “As the economy recovers, pent-up wage cuts will probably continue to slow wage growth long after the unemployment rate has returned to more normal levels,” the researchers said.
Another point to make, again considering the unemployment rate, is that those working are glad to still have a job. And with the economy still struggling it is unlikely that many feel the time right to push for higher wages. In fact, it is a “buyers market” right now when it comes to labor. And it will remain one until we get into much higher growth percentages and the demand for labor begins to outstrip the supply. We’re not even close to that at this point.
Globalization continues to pressure wages. Thanks to new technologies, Americans are increasingly competing with workers world-wide. “We are on a long-term adjustment, as China, in particular, but all developing countries, get their wages closer to ours,” said Richard Freeman, an economist at Harvard University. According to Boston Consulting Group, there will be only a roughly 10% cost difference between the U.S. and China in making products such as machinery, furniture and plastics by 2015.
Technology is also replacing workers in many industries. Automation is especially tough on low skilled workers. But again, given laws like ObamaCare, the incentive at work is to have fewer employees, not more. Businesses will automate where it makes sense and helps make a profit. It is also a means of closing that wage gap mentioned above, so it isn’t a trend that is likely to end anytime soon.
All of those factors and what I’ve mentioned in addition to them combine to make unemployment and wage growth both remain static. There simply aren’t any incentives at the moment to hire more people. Certainly not in GDP growth. Certainly not with the plethora of new regulations and laws.
In fact, as is mentioned in the article, at the moment there are only two paths to higher wages:
The only path to wage gains is through a stronger economy or an increase in demand for specialized skills.
The economy is moribund and has been for quite some time with GDP growth under 2% for the last three quarters.
That narrows the path to wage gains to a single one – developing specialized skills. It isn’t a path open to everyone, unfortunately, for a number of reasons.
So how could government help change all of that? Quite simply by getting out of the way – something it seems completely unable to comprehend or do.
And because of that, it continues to contribute negatively to the economic situation we endure.
You remember our Chicago lawyer whose sole argument against moving some of the Boeing Dreamliner production to a non-union plant in SC (a right to work state) was that Southerners in general were less skilled and less literate?
Apparently he pulled that out of the part of the anatomy that doesn’t get much sunshine. In his case that might have been his head, considering where it had to be residing at the time to come up with that sort of an argument.
Nevertheless, the Washington Examiner, in an editorial, examines a CNBC survey on exactly that topic and finds the lawyer’s argument to be specious:
The strongest remaining argument that labor unions are relevant or desirable is that they provide business with a better-trained and more knowledgeable work force. But as quaint as it is to think of organized labor as the guardian of know-how and quality, it just isn’t so, according to a new CNBC ranking of "America’s top states for business." The survey, which considered the work forces of all 50 states, found that the downsides of unionism far outweigh any advantages when it comes to work force quality.
And those downsides are demonstrated by the results of the survey:
Incredibly, 17 of the top 18 states ranked by CNBC in terms of "work force" are "right-to-work" states, where unions are significantly less powerful. In states with right-to-work laws, workers cannot be compelled to pay union dues, and workers are far less likely to let unions represent them if they are actually given the choice. In CNBC’s survey, all 22 of the nation’s right-to-work states (mostly states in the South and West) made the top 25 in terms of quality of work force. In the separate category of business friendliness, which gauged states’ regulatory and legal environments, 10 of the top 15 states were right-to-work states as well. Needless to say, the combination of good workers and congenial business climates make these states highly attractive to business.
You’d think it would be “needless to say” such a thing, but then our Chicago labor union lawyer points out why, in fact, it is necessary to say these things. Primarily because it is a myth that union states provide a more highly skilled and productive workforce and it is also a myth that unions are necessary in today’s business climate. Those are two myths which are obviously hard to kill, but the survey makes the point that potential employers have already discovered and have been taking advantage of for years – something of which our Chicago lawyer was obviously completely unaware. Workers in right-to-work states are highly skilled and productive and willing to work at a good wage that still gives their employer the ability to compete.
But on the other side of this there’s a method, or at least a policy, that is so obvious it is getting to be hard to deny, and the Examiner hits it:
Obama has made the survival of unions a much higher priority for his administration than sustainable job growth, beginning with the bailout of the automakers and continuing most recently with his National Labor Relations Board’s persecution of Boeing for expanding its manufacturing operations in the right-to-work state of South Carolina. It is sad, although perhaps not surprising, that Obama would subordinate the interests of 93 percent of American workers to those of one politically favored group, but this is precisely what he is doing. The 93 percent would do well to take notice in the coming elections.
I’m not sure all of the 93% will all notice, but those who are and have been effected by this administration’s obvious bias should – like those Boeing workers in SC, or the screwed-over stakeholders in GM and Chrysler, etc. This is an administration, along with the party it is a part of, which have cast their lot with unions almost to the exclusion of the rest of the working public. Their NLRB action against Boeing in SC makes that point loud and clear.
And that’s not a myth – that’s reality. It is a narrative which needs to be used in 2012 when it will again become obvious who it is the Democrats and the Obama administration will turn for funding and activists. We’ve seen the union rent-a-mobs working before. They’ll be in action again. That relationship needs to be highlighted and relentlessly exposed, especially in this era of high unemployment.