Wages Fall Again

By EDUARDO PORTER

Published: NYT, July 18, 2004

The amount of money workers receive in their paychecks is failing to keep up with inflation. Though wages should recover if businesses continue to hire, three years of job losses have left a large worker surplus.

“There’s too much slack in the labor market to generate any pressure on wage growth,” said Jared Bernstein, an economist at the Economic Policy Institute, a liberal research institution based in Washington. “We are going to need a much lower unemployment rate.” He noted that at 5.6 percent, the national unemployment rate is still back at the same level as at the end of the recession in November 2001.


On Friday, the Bureau of Labor Statistics reported that hourly earnings of production workers – nonmanagement workers ranging from nurses and teachers to hamburger flippers and assembly-line workers – fell 1.1 percent in June, after accounting for inflation. The June drop, the steepest decline since the depths of recession in mid-1991, came after a 0.8 percent fall in real hourly earnings in May.Coming on top of a 12-minute drop in the average workweek, the decline in the hourly rate last month cut deeply into workers’ pay. In June, production workers took home $525.84 a week, on average. After accounting for inflation, this is about $8 less than they were pocketing last January, and is the lowest level of weekly pay since October 2001.

This is a contradictory, confusing, and in some spots flat-out inaccurate story. For instance, this:

…the economy has been adding hundreds of thousands of jobs almost every month this year…

Hardly. January, February and March barely broke 100,000; April was a measly 26,000. It’s true that May produced over 300,000 new jobs but that fell precipitately in June. It has been a roller-coaster year during which we have gained some 1,500,000 jobs give-or-take but lost 3/5 of that number to outsourcing and globalization. Not exactly a stellar record. Then this–

[S]tagnant wages could put a dent in the prospects for economic growth, some economists say. If incomes continue to lag behind the increase in prices, it may hinder the ability of ordinary workers to spend money at a healthy clip, undermining one of the pillars of the expansion so far.

–is followed by this:

On its own, the decline in workers’ wages is unlikely to derail the recovery. Though they account for some 80 percent of the work force, they contribute much less to spending. Mark M. Zandi, chief economist at Economy.com, a research firm, noted that households in the bottom half of income distribution account for only one-third of consumer spending.

So are we a ‘pillar’ or are we irrelevant?

Zandi’s formulation is particularly disturbing, first because it suggests that the working middle-class has been all but destroyed as an economic force by insanely low wages (many of us are making less now, in straight dollars unadjusted for inflation, than we were 20 years ago), and second because this is a vicious circle that feeds on itself: why should politicians worry about the effect of the economy on us if we contribute so little? And if they don’t worry about us and pander to the rich, what hope is there to keep America from sliding even more deeply into a country sharply divided between a tiny minority of haves and a huge majority of have-nots with the political power firmly in the grasp of the haves? That’s not a democracy, it’s a plutocracy; the thing we used to pride ourselves on not being is what we’re becoming, and it doesn’t seem to bother us.

[C]oming after the bonanza of the second half of the 1990’s, the first period of sustained real wage growth since the 1970’s, the current slide in earnings is a big blow for the lower middle class. Moreover, the absence of lower income households could also weigh on overall economic growth – putting a lid on the mass market and skewing consumption toward high-end products.

“There’s a bit of a dichotomy,” said Ethan S. Harris, chief economist at Lehman Brothers. “Joe Six-Pack is under a lot of pressure. He got a lousy raise; he’s paying more for gasoline and milk. He’s not doing that great. But proprietors’ income is up. Profits are up. Home values are up. Middle-income and upper-income people are looking pretty good.”

Tales of tight budgets at the bottom are springing up across the country. “I haven’t had a salary increase in two years, but the cost of living is going up,” said Eric Lambert, 42, a father of three who earns $13 an hour as a security guard at 660 Madison Ave. in Manhattan.

Silvia Vides, 43, who earns $11 an hour in a union job as a housekeeper at the Universal City Sheraton hotel in Los Angeles, said, “Sometimes I don’t know how I pay the bills and food and rent.” She has cut back on all nonessential expenditures and she is four months behind on payments on $4,000 in credit-card debt.

These ‘tales’ aren’t ‘springing up’; they’ve been here all along. Since Reagan and Stockman instituted trickle-down in the 80’s and continuing as Clinton and the DLC began their romance of the business community, the divide between the classes has grown much more sharply. Mr Porter may not have been paying attention but all during the 90’s social scientists and economists were pointing out that Clintin’s boom had had almost no effect on real wages and that the haves were gaining enormous wealth while the have-nots were stagnant or declining. Far from being a new story, this has been going on for a quarter-century and getting worse every year.

But I suppose I should figure it’s nice of Mr Porter to have noticed. At last.

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