Wednesday, August 30, 2017

Why Wages Have Lost Ground in the 21st Century

The problem with stagnant wages is our socio-economic system requires ever-higher incomes to function.
One of the enduring mysteries for conventional economists is why wages aren't rising for the bottom 95% even as unemployment is low and hiring remains robust. According to classical economics, the limited supply of available workers combined with strong demand for workers should push wages higher.
Why have wages for the bottom 95% lost ground in an expanding economy?We can start our search for answers by looking at a chart of wages going back 44 years to the early 1970s. Note that the top 5% began pulling away in the 1980s, when financialization and globalization took off, and accelerated in the 1990s tech boom and the early 2000s housing bubble. The bottom 95% benefited from these booms, but at a much more modest level: wages for the bottom 95% almost returned to 0% gain as opposed to actual declines.
But after the wheels fell off the bubble in 2008/09, the "recovery" since then has seen wages for the top 5% soar and the wages for the bottom 95% crater. (This chart is for males; the next chart reflects family income.)
Here's family income going back to the postwar boom of the late 1940s and 1950s. Note the structural change in the early 1970s and the stagnation in all income levels since 2000:
The forces that gathered steam in the 1970s, 80s and 90s that pressured wages are well-known: financialization, which benefited the top echelons at the expense of the increasingly burdened debt-serfs; globalization, which pitted American workers against an ever-expanding global work force of low-paid employees, and automation/software, which expanded from the factory floor into service sectors.
Those workers with the skills required by financialization, globalization and automation--the technocrat and managerial classes--benefited mightily, while those who could not add enough value at the top of the chain saw their wages stagnate.
But these structural forces don't explain all the stagnation of wages for the bottom 95%. There are three other equally powerful structural forces at work:
1. Zero interest rates and abundant liquidity have kept zombie firms alive, bloating supply. In sector after sector, there is an oversupply of everything: too much retail space, too many fast-food outlets, etc. Marginal enterprises have been able to continue as zombies, skimming just enough income to borrow more money and roll over existing debt.
In an environment of historically normalized rates, i.e. 6% mortgages and higher rates for other debt, these zombie firms would be shuttered and the oversupply would diminish, enabling the survivors to regain pricing power and thus the wherewithal to pay higher wages.
2. Revenue that could have gone to wages has been siphoned off by soaring labor overhead: healthcare premiums, higher workers compensation taxes, etc. When an employer has to pay $500 more per month for an employee's healthcare insurance premium, that's $500 that could have gone into a fatter paycheck; instead, it disappeared into the insatiable maw of U.S. healthcare.
3. Many if not most employers can't afford to pay higher wages regardless of the labor market. Most employers are facing ever-higher costs while their pricing power (ability to raise prices) is effectively zero due to the oversupply of virtually everything.
The only sectors with the ability to raise prices at will are cartels that pass their profiteering onto the general populace with the protection of the federal government: higher education, Big Pharma, etc.
Faced with zero pricing power and higher costs, employers either add hours to existing employees' schedules or hire no-benefit part-time employees. This is the reality for most small businesses.
The problem with stagnant wages is our socio-economic system requires ever-higher incomes to function. Stagnant wages kill pay-as-you-go social programs such as Medicare, local governments dependent on income taxes, and of course the consumer sectors that rely on the spending of the bottom 95%.
As I have noted many times, filling the gap between stagnant wages and higher expenses with more debt works for a while, but it isn't a permanent solution, as eventually the costs of servicing the higher debt eats the borrower alive--and when he defaults, the bad debt eats the lender alive, too.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via
Check out both of my new books, Inequality and the Collapse of Privilege($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Robert L. ($5/month), for your wondrously generous pledge to this site -- I am greatly honored by your support and readership.
Thank you, Vicky R. ($5/month), for your superbly generous pledge to this site -- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

Though I earn a small commission on books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP