Real wages still falling

Posted by: Michael Mandel on August 16

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.

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Reader Comments

Elliot

August 16, 2006 11:43 AM

My earnings weren't very high to begin with

Brandon W

August 16, 2006 12:24 PM

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).

Elliot

August 16, 2006 12:30 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?

Kartik

August 16, 2006 03:32 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

Piense El Tanque

August 16, 2006 06:56 PM

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

Brandon W

August 17, 2006 11:04 AM

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.

Mike Reardon

August 18, 2006 03:31 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.

Piense El Tanque

August 18, 2006 08:32 PM

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.

Mike Reardon

August 20, 2006 06:56 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.

Nathan

August 23, 2006 12:04 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.

Mike Mandel

August 23, 2006 02:20 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.

Testy McTesterson

April 25, 2007 11:09 AM

Test.

andrew

April 26, 2007 11:03 AM

testing comments

andrew

May 7, 2007 12:34 PM

testing comments

Anonymous

September 6, 2007 07:14 PM

When you manufacture everything overseas and then sell it in and outside of the USA (called outsourcing), you create a real problem for the 300 million people living inside the United States (40 million of who are so poor they are now below the poverty line [statistically comprised primarily of poor unemployed workers and their kids not seniors or the disabled]. This problem is only going to get worse as millions of jobs once performed by American workers are legally outsourced each year by the trans-national corporations in the US.

Further compounding the problem are the many millions of illegal aliens which drive down wages wherever they are found: agriculture, landscaping, restaurants, garment industry, janitorial, and yes even retail and lately those precious skilled labor positions in construction and manufacturing.

Wages are falling, skilled labor opportunities are diminishing, etc... add the real estate bubble finally popping, the stock market tanking, tech sector falling, etc.. and we are on the verge of recession.

Only solution I see is for the politicians who live in the beltway bubble to get a clue and:

1. Send home the illegals as they are identified and finally hold the employers responsible for only hiring American workers. Not only would this save the taxpayer all those social costs the illegals are freely using but it would also save taxpayer money for the unemployed American workers who become unemployed (a double whammy in taxpayer savings) but wait: American workers pay their taxes at a statistically higher rate than illegals so now you have more revenue too. And they will have more income to pay revenue on because wages/benefits will increase. A bonus is agriculture in American will undergo some much needed reform.

2. Mandate that American corporations who want to sell in the USA have to manufacture in the USA. Use tariffs wisely to protect American corporations.

3. End all this NAFTA nonsense. It's just a codeword for outsourcing.

Barry

November 26, 2007 02:25 PM

"Despite today's cheerier inflation number, real wages are still falling."

Don't falling real wages help with inflation? They preserve more of the pie for the highly deserving rich.

Wayne

February 21, 2008 07:03 PM

The big omission in real wage data is the glaring discrepancy between the haves and the have-nots. Government data shows an "average" erosion of real wages. What the data doesn't tell you, is that the top 10% of wage earners have seen their income skyrocket..... which can only mean the so-called wage erosion of the bottom 90% is greater than reported.

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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