Wage news not good

Wages have been in the news, and the news isn’t good. According to Jared Bernstein of the Economic Policy Institute, “real hourly and weekly earnings have fallen for six out of the last seven months.”

For manufacturing workers and non-managerial service employees, real wages, wages adjusted for inflation, dropped by 1 percent in June, the biggest decline since the 1991 recession. In May, real wages for the same workers declined by 0.8 percent.

This is troubling news because the U.S. economy is three years into its recovery from the 2001 recession, and if this recovery were like others, real wages should be increasing.

Corporate profits, however, are doing fine. According to EPI, during the three years of this recovery, corporate profits grew by 62.8 percent. Over the same period, wages grew by only 2.8 percent.

The news on wages doesn’t surprise some workers in Austin, Texas. Jennifer and Janice, who work for the state, haven’t received a raise since 2001. Joe, who works for a private government contractor, recently was rewarded for his hard work and loyalty with a pay cut. Carl, a construction worker, has done better than the others. His union negotiated a $1-an-hour raise last year. Unfortunately, most of his raise went to cover the cost of increased health care premiums.

While workers have struggled, the rich have prospered. The richest 20 percent of Americans received 77 percent of the 2003 Bush tax cuts and benefited the most from the stock market’s mini-boom of last year.

Tax cuts for the rich and stock market gains resulted in a burst of luxury consumer spending, which stimulated the economy last year. But this narrow base of consumption can’t sustain economic growth.

To sustain economic growth, consumption must be broader. But stretched paychecks along with rising prices have made it harder for workers buy more. Stores whose customers are workers are feeling the effects of stagnant wages. June sales at Payless Shoe Stores, for example, were down 1 percent compared to last year.

The wage crunch even has some Wall Streeters worried. Commenting on the fact that a disproportionate number of recently created jobs are low-paying jobs, Stephen Roach, chief economist for Morgan Stanley, said that “the quality of job creation [during this recovery] has been decidedly sub-par. … Unless that changes, the risks to a sustainable economic recovery will only intensify.”

Writing in the July 22 edition of the New York Times, Roach said globalization is affecting work in the U.S.: “American companies are now replacing high-wage workers here with like-quality, low-wage workers abroad … It was only a matter of time before globalization of work affected the United States labor market. The character and quality of American job creation is changing before our very eyes. Which poses the most important question of all: what are we going to do about it?”

That’s a good question, Mr. Roach!

The author can be reached at pww @ pww.org.