Tuesday, November 11, 2014

Don't Expect Better Wages or Enough Jobs Soon

Or maybe ever again.

Yesterday Chris Matthews (on MSNBC) had on former Democratic congressman Harold Ford Jr. (a corporate shill, now banker) as a guest on his show to discuss a recent article at the New York Times, The Great Wage Slowdown, Looming Over Politics.

Dean Baker (at the Center for Economic and Policy Research) says in a post that the author of that New York Times article only cited two "experts", both Clinton administration officials with strong ties to Wall Street — and that their assurances includes no mix of the policies that are likely to lead to wage growth any time soon. But Baker says:

"It is worth noting that a policy [that one expert] likely opposes is likely to offer near-term benefits. Specifically a lower valued dollar could reduce the trade deficit by making our goods and services more competitive internationally. This could get us back to full employment which would allow workers at the middle and bottom of the wage distribution to share in the gains of economic growth. The Clinton administration explicitly pursued a high dollar policy which led to a massive trade deficit. This deficit created a gap in demand which could only be filled with the demand generated by the stock and housing bubbles. Wall Street tends to prefer a higher dollar both because it increases its power internationally and reduces inflation." (Read the reader's comments)

After reading that article at the New York Times, I wondered: With the stock markets and corporate profits constantly recording record highs year after year, how can workers (and/or the government) ever FORCE employers to pay better wages — and/or to hire more people? The government can't even force employers to pay a higher minimum wage with Republicans running Congress.

And how can the government entice employers to hire more people, especially when the "job creators" need fewer and fewer workers to do what they want done. There are a whole lot of people without work (maybe because of computers, offshoring, artificial intelligence, robotics and automation), and that puts a downward pressure on wages because the labor market is already over-saturated with idle potential workers. And with so many people unemployed (and with low and stagnant wages), that just creates even less demand for goods and services (as in a "race to the bottom").

The New York Times article mentions tax breaks for the poor and what's left of the "middle-class" (and higher taxes on the wealthy) as part of a solution, but that doesn't do near enough. We could not tax multinational corporations at all, and that would only shove more cash into their executive's pockets and offshore bank accounts. Can anybody think of any scenario where more people in the US can be hired and every American is paid better a wage? I can’t.

I heard Obama the other day boasting that, since the recession, the US economy has added more jobs than all of the other developed nations combined. Is China still considered an "undeveloped" country? Last year 13.1 million new jobs were created in China's urban areas.

A reader's comment from Mark Thoma's blog regarding that New York Times article:

Leonhardt [the author the article] is broadly correct that the Dem Party establishment has no answers for middle-income wage stagnation, but neither does he. He lists the acceptable strategies and tactics and then says that no combination of them will solve the problem. He’s right about that, but if he (and they) would look over there—no, not there, a little farther to the left—they would see ideas that will work (but alienate the big campaign contributors): Weaken the dollar (as Reagan did in the Plaza Accords) and/or adopt the Warren Buffett import license plan to eliminate the trade deficit; borrow $2-3 trillion (at zero real interest rates) and embark on a massive infrastructure renewal; crack down on illegal employment of aliens and end guest worker programs; end the tax and other legal advantages that give MNCs huge cost advantages over purely domestic companies; rediscover the antitrust laws and break up the near-monopolies that have been built to extract income and wealth from the middle class; restore the division between labor share of income and capital share that existed, say, 35 years ago; tax capital income at a higher rate than labor income (or at least at the same rate); reverse the incentives that cause people and institutions with money to gamble on asset price movements instead of directly investing in R&D, software, and tangible productive assets; and to make those things possible pass a Constitutional amendment to reverse Citizens United and begin to end the power of Big Money in politics and government. All of those lefty strategies and tactics are designed to bring America to full employment (a goal not mentioned by Leonhardt), and when/if we have full employment, wages will start to rise per Econ. 101 (as demonstrated from the end of WWII to about 1975 and in the last half of the 1990s). Or, as Leonhardt predicts, we could just keep on failing.


  1. Paul Krugman weighs in on that New York Times article:

    "If Republicans are gaining from public frustration here [on stagnant wages], it is ironic. After all, the GOP is systematically opposed to anything that would increase workers’ bargaining power, and bitterly opposed to any suggestion that inequality is an issue. What we need, they say, is growth, which will raise all incomes (even though it hasn’t).


  2. We have an oversupply of labor (and why wages aren't rising)...

    "One elephant in the room is a set of statistics describing the participation in the labor force of those who are employable --- the so-called Labor Force Participation Rate (LFPR), which remains at low levels unseen since the early 1970’s (when two income families were not yet the norm.) The LFPR, together with the ratio of employed individuals to the population of employable people (the Employment-Population Ratio), are flashing bright red warnings about substantial slack in the U.S. labor force. Such slack would seem to indicate that there is little concern to be had about sustainable inflation in wages and, moreover, that the increased wages that are necessary for the vibrant recovery and reflation of the U.S. economy are not likely to manifest themselves any time soon."

    * Read the entire post here:


  3. Economic Policy Institute:

    "A number of postmortems about the [2014] election have focused on the issue of wage stagnation—the fact that wages for the bottom 70 percent of the American workforce have essentially seen no increase at all since 1979. Worse, without the full-employment period of the late 1990s that pushed up wages across the board, wages for this group of workers would have outright fallen over the past three decades ... a serious policy effort to boost American wages would involve bringing a wage focus to every aspect of economic policy. So what are the prospects of policymakers getting serious about wages in the next two years? Not great ... So why my pessimism? Because the most cited issues on which the new Republican-led Congress and the Obama administration might strike a deal are tax reform and trade agreements."