Monday, August 28, 2006

Producing more, earning less

The productivity of American workers continues to lead the world. Despite criticisms (much of it unwarranted, IMHO) of the Millennials and some segments of Gen X, the workplace is still paying homage to the Protestant view of work. Yet, with productivity continuing to ramp upward, wages have stagnated and Americans are now earning less, in real dollars, than any time since 2003, at least according to an article, by Stephen Greenhous and David Leonhardt, in today's NY Times.

According to the writers, "The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as 'the golden era of profitability.'"

So we are working more and earning less--many of us knew this intuitively, without having it quantified. What does this ultimately mean for American workers? Ben Bernanke, Fed chairman, while not specifically addressing the issue of wages, did warn about "the unequal distribution of the economy’s spoils..." and that these recent economic changes imperil "the livelihoods of some workers and the profits of some firms."

Despite these economic storm clouds, Americans are generally less dissatisfied with the economy than at any time since the 1980s and early 90s. The asset "house of cards" perpetuated by rising house and stock values, has allowed many Americans to remain blissfully unaware of any ill winds blowing.

On the flipside, profits for companies and ultimately, those at the very top, continued to grow--a clear case of the rich getting richer and the rest, not doing so well.

"There are two economies out there,” Mr. Cook [Charles Cook, publisher a political newsletter], the political analyst, said. “One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings."

“And then there’s the working stiffs,’’ he added, “who just don’t feel like they’re getting ahead despite the fact that they’re working very hard. And there are a lot more people in that group than the other group.”

While most Americans seem to be too busy with their reality-based TV programs and other forms of bread and circuses to notice, there are some who recognize the seriousness of this issue and propose possible solutions to this dangerous inequality.


weasel said...

Useful links, thanks Jimbo.

I think we are coming in for a hard landing. Everything is being kept in the air by house prices and overseas dollar holdings. We only domestically produce 25% of the goods we consume in this country. The other 75% just contributes to the ballooning balance of payments deficit. And we have to keep increasing imports as a crappy insurance policy against the dumping of greenbacks. We are reasoning that if we have so much debt and offer such a huge market other countries would be mad to cripple our economy by bailing on the dollar. That's sort of a long bet, I think.

Should the housing bubble burst, or should a foreign central bank or two decide to get out of their dollar holdings it could resemble 1981 or even 1929 on these shores.

Weaseldog said...

I posted a map here:

With a link to the original source.