Feels Like 1996 All Over Again

Posted by: Michael Mandel on May 17

Maybe it’s just me, but I’m getting flashes of deja vu from the NYT’s multi-part series on class, followed by today’s WSJ story on consumer debt, with the headline “Lagging Behind the Wealthy, Many Use Debt to Catch Up.” The story says

More and more Americans are turning to debt to pay for lifestyles their current incomes can’t support.

Sounds pretty horrible, doesn’t it? This deluge of high-profile negative stories reminds me a lot of early 1996, when the NYT ran its multi-part series, “The Downsizing of America.” In that case, the main point of the series was that corporate layoffs had

produced an unrelenting angst that is shattering people’s notions of work and self and the very promise of tomorrow.

Okaaaay…the similarity between now and 1996 is simple. In both cases there had been extended period of rising profits and weak wage growth. That’s what produces the higher debt levels, and not surprising, the sense of angst.

Of course, the 1996 handwringing was followed by the biggest real wage gains in more than 20 years, and the lowest unemployment rates since the 1960s. I’m willing to bet that real wages are going to start rising soon, and the angst will quickly leak away.

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Reader Comments

Jack Krupansky

May 17, 2005 01:42 PM

I would tend to agree with you that there is a reasonable likelihood that real wages will tend to trend up, but with some big caveats:

1) It depends on how you measure inflation and that keeps changing.

2) There is the distinction between the overall economy, trends in existing sectors and demographics, and the impacts of rising and emmerging sectors and demographics.

3) The merit of "the average" is no solace to those falling off the ladder, as in the thinning of the old middle class. Imagine what real wages might be doing if we had a more effective safety and retaining and job placement "net".

4) Are we measuring wages per hour or week and how is the actual length of the workweek evolving relative to the nominal, public, official workweek definition?

5) How are we accounting for overtime for work environments were overtime pay is not a reality?

6) We should be looking at how much work is required to live a "normal life" rather than raw pay. To what extent do both spouses "need" to work or is extra part-time work "needed" to pay for basic lifestyle choices?

7) How do we "quality adjust" time to account for the fact that not every hour of a workers day or week is equally valued by the worker and their family? In other words, we should be subtracting the opportunity cost of each worker hour and recognizing that a few hours work beyond an 8-hour day is really not compensated at relatively the same rate (compared to other uses of the time) even though it might be compensated at the same absolute rate or even compensated for modest overtime pay in some cases.

Do we really have a solid handle on how the term "real wages" should really be defined? Do traditional definitions have any relevance today and going forward?

Otherwise, I think we agree on the nominal trend of real wages going up over time.

-- Jack Krupansky

Sam Jew

May 18, 2005 03:05 AM

Call me a pessimist, but there is a huge difference between 1996 and today in terms of new industries rising to absorb the available labor supply.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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