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Real wages still falling


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August 16, 2006

Real wages still falling

Michael Mandel

Despite today's cheerier inflation number, real wages are still falling. The BLS reports that real hourly earnings are down by about a half percentage point since February.

This is not good. And blaming it solely on oil prices doesn't help, because it looks like the increase in oil prices is going to stick.

10:37 AM

Labor Market

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? The CPI Report from Economist's View

The CPI data are consistent with the PPI release yesterday: CPI data show US inflation easing, by Daniel Pimlott, Financial Times: The cost of living for US consumers, excluding energy and food, rose less quickly in July than it did [Read More]

Tracked on August 16, 2006 01:13 PM

My earnings weren't very high to begin with

Posted by: Elliot at August 16, 2006 11:43 AM

It's a race to the bottom for the bottom 90% of the population. Globalism and "free market" capitalism is great... for those that control the capital. I suspect the reality is harsher than the numbers reported because I still hold that inflation is underreported due to "convenient" methodology changes (such as in 1995).

Posted by: Brandon W at August 16, 2006 12:24 PM

When you say the oil prices will stick, are you referring to a pretty constant increase in oil prices, or are you sa ying that oil prices will stay static aroun where they are now?

Posted by: Elliot at August 16, 2006 12:30 PM

I think it is due to high inflation in healthcare costs. All the money that employers could pass on is going to healthcare inflation.

This link cites this blog, and explains why :

http://futurist.typepad.com/my_weblog/2006/04/us_wages_may_fi.html

Posted by: Kartik at August 16, 2006 03:32 PM

Brandon W, I suppose you have a better socialistic plan to maintain a strong economy?

Posted by: Piense El Tanque at August 16, 2006 06:56 PM

Piense,

Actually, no. I'm not at all a proponent of socialist economics (with one exception that isn't particularly relevant to go into, here). I am, however, a strong proponent of open knowledge, honest numbers, and acceptance of where economics - as a field of thought - is badly failing. I think inflation figures, among others, are a sorry joke; I think our "free market" model is self-destructive and potentially close (on an historical scale) to collapse; I think the government is dishonest with the numbers reported and I think mainstream economists - to say nothing of politicians - have too much vested interest in the so-called "free market" model working; and I think many people are being very dishonest about where things are and where they are going. And may I remind you that all markets are legal structures with rules of engagement, and there is no such thing as a real "free" market. "Free market economics" is just a nice political slogan.

If you want a better idea of where my thoughts come from, read up on Austrian economics, sustainable economics, and behavioural economics. Throw in some ideas that a modern civilization requires mass public support (i.e. government support) of certain national infrastructure, and you have my perspective.

Posted by: Brandon W at August 17, 2006 11:04 AM

The Fed's discounts the inflation effect of tech development, as increasing utility per unit at ever decreasing cost per unit. We accept that, and that with the application of tech to labor it does increase the productivity of labor at reduced cost. They are both considered good economic effects which reduce the cost of the product and increased productivity at lower cost. Globalism which is ever expanding labor at lower cost, decreases cost for production and services per labor unit, and from tomorrow on, the application of tech to that ever expanding labor at lower cost, will always be on a deflationary track, that effect should be continuous for some time.

This with domestic labor under attack by the imported lower cost labor from local nations, is a perfect storm to decrease this nations labor cost for as long as the world cost of labor decreases. Being a Lyndon Johnson liberal, I can see the direction of deeper deficits to increase needed social services as a good, and the best use of lower labor cost and greater need for services. That may look like very Swedish or European national support, but get ready some long lasting worker support services inside this nation.

Posted by: Mike Reardon at August 18, 2006 03:31 AM

Mike- More "worker support services"? Have the social programs that already exist proven ineffective? These programs do nothing more than lock people into poverty. Not to mention that LBJ was a disgrace. Capitalism will continue to carry us through. You see more countries moving toward free market economies than away from them. Globalism, while initially causing real wages to fall, will stablize and eventually lead to more self sufficient countries and higher standards of living world wide.

Posted by: Piense El Tanque at August 18, 2006 08:32 PM

Piense - Ever expanding lower wage labor is now subject to increased productivity of the products and services they produce, and they hold the very tech to do this with. That will decrease labor cost per unit produced way into the future. Capitalist transfer of production to poor nations is in exchange for this effect. So our getting ahead of the social services for our workers, that is money into wage pockets for spending, as a domestic growth programs will be demanded by the next LBJ. One goal of the Chinese Communist Party is retaining a greater share of margins enhanced by increases in innovation, so increased profit return, a center of economic business growth over the last five years is in some question going forward. And the wealth effect from personal assets housing is now failing to hold still more creative financial instruments. These are now failing programs for transfer of economic wealth going forward. Getting ahead of this cheap labor is the trick for domestic expansion.

Posted by: Mike Reardon at August 20, 2006 06:56 PM

Mike,

If you are of an open mind, is the economic "pie" fixed so to speak? Or can it grow? And also, another question for you, on what basis are workers paid? In other words, what is the reason you earn a salary?

And Mike, the hourly earnings series in the BLS is a bit suspect, and also does not take into account non-cash compensation, which has been growing smartly due to rising health care costs. So, the picture is not as bad as it sounds, but its not great from a worker perspective either.

Posted by: Nathan at August 23, 2006 12:04 PM

Hi Nathan

The same outcome of falling real wages shows up in the ECI figures, and the income numbers from Census (and I assume the new ones will show the same as well).

And yes, I'm a firm believer that the economic pie can grow. In fact, that's one of the central tenets that I follow.

Posted by: Mike Mandel at August 23, 2006 02:20 PM

Test.

Posted by: Testy McTesterson at April 25, 2007 11:09 AM

testing comments

Posted by: andrew at April 26, 2007 11:03 AM

testing comments

Posted by: andrew at May 7, 2007 12:34 PM


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