July 18, 2004
NO ONE WOULD TRADE PLACES WITH HIS FATHER:
Hourly Pay in U.S. Not Keeping Pace With Price Rises (EDUARDO PORTER, 7/18/04, NY Times)
The amount of money workers receive in their paychecks is failing to keep up with inflation. Though wages should recover if businesses continue to hire, three years of job losses have left a large worker surplus."There's too much slack in the labor market to generate any pressure on wage growth,'' said Jared Bernstein, an economist at the Economic Policy Institute, a liberal research institution based in Washington. "We are going to need a much lower unemployment rate.'' He noted that at 5.6 percent, the national unemployment rate is still back at the same level as at the end of the recession in November 2001.
Even though the economy has been adding hundreds of thousands of jobs almost every month this year, stagnant wages could put a dent in the prospects for economic growth, some economists say. If incomes continue to lag behind the increase in prices, it may hinder the ability of ordinary workers to spend money at a healthy clip, undermining one of the pillars of the expansion so far. [...]
"There's a bit of a dichotomy," said Ethan S. Harris, chief economist at Lehman Brothers. "Joe Six-Pack is under a lot of pressure. He got a lousy raise; he's paying more for gasoline and milk. He's not doing that great. But proprietors' income is up. Profits are up. Home values are up. Middle-income and upper-income people are looking pretty good."
There are so many questions about the premises of this story that it's hard to know where to begin. The most obvious may be where does this guy think any serious inflationary pressures are going to come from if wages are flat? But also, Robert Reich was prattling on about how wages were flat while profits are rising the other night on NPR. He vowed that people would not tolerate such a thing and that in particular they'd demand that we start taxing profits and not income. It would seem he's accidentally stumbled into the point of the matter there--American workers have over a trillion dollars just in their 401ks, never mind any other type of stock holdings. Why isn't it a sensible decision on their part to prefer to see their 401k, funded with pre-tax dollars, grow more rapidly than their after tax wages? And do measures like the ones cited above and by Mr. Reich even measure benefits and compensation or are they just talking about wages? Because given how fast things like health care costs are rising an employee could easily be getting a huge effective raise if his company is just covering his health care in whole or in part. And if the surveys aren't even measuring 401ks--as they are not included in the national savings rate numbers--then you could have relatively flat wages over the past decade or more but folks reaping huge hidden benefits. Posted by Orrin Judd at July 18, 2004 1:54 PM
Several points here:
1. It's the New York Times.
2. I read a piece a couple of decades ago in which a major media organization-might have been the NYT-used the following dirty trick: When the number of jobs rises, the average wage OF THOSE WORKING can fall, simply because someone unemployed before enters the workforce at a wage lower than the previous average. E.g., average wage is $9/hour, unemployed guy gets a job for $8/hour, so average wage falls. Of course, this stat is an artifact of the increase in employment.
3. The number of jobs has been rising for a while now. What is it, at least the last 6 months?
4. Finally, note the paragraph a few lines down contradicts the headline.
All in all, priceless, classic, 200 proof New York Times. Exactly what we've come to expect from them over the last few decades.
Posted by: Tom at July 18, 2004 2:50 PMCorrection - The contradiction is not between the headline and the story; it's between the "three years of job losses" and the "the economy has added hundreds of thousands of jobs almost every month this year."
On the bright side, at least they identified the affiliation of the economist quoted as a liberal org. That's an improvement over the past.
- T
Posted by: Tom at July 18, 2004 2:55 PMI am 57 years old, and my 401k is worth about $400,000. And every day I kick myself because I only put in 2% of my salary beginning at age 30--I could have done 3% or 4% easily. And I would have close to $1,000,000 now.
Between growth in market value plus my current contribution, plus my employers match of 3%, I expect it to easily reach $1,000,000 or more by the time I turn 65.
Over the next few decades, the Left/Democrats are truly toast. My kids started putting money into their 401k's fully 10 years younger than I did.
Posted by: ray at July 18, 2004 9:12 PMray:
And the astonishing thing is that your $500k is not considered "savings" when they calculate national savings rates.
Posted by: oj at July 18, 2004 10:53 PMRobert Reich was prattling on about how wages were flat while profits are rising... He vowed that people would not tolerate such a thing and that in particular they'd demand that we start taxing profits and not income.
I very highly doubt that.
If the common citizens were capable of making such an analysis, the first thing they'd do is demand that Congress reform Social Security.
Since there's no such groundswell of support for SS reform, I cannot believe that the proletariat will suddenly become astute and sophisticated advocates of income tax reform.
Not to mention, taxing only profit, and not income, is exactly 180° from what should be.
Only income should be taxed, and corporate profits should be completely tax free.
Michael:
The only thing that should be taxed is consumption, and as we keep adding tax preferred savings accounts, that's exactly where we're heading.
Posted by: David Cohen at July 19, 2004 7:55 AMConsumption should be taxed more, and income less, but remember that discretionary consumption is one of the major drivers of the US economy, and what happened after the luxury tax on yachts was passed.
Also, like any other factor of production, there can be too much savings, a glut, which causes inefficient usage and waste.
Posted by: Michael Herdegen at July 19, 2004 10:18 AM"The most obvious may be where does this guy think any serious inflationary pressures are going to come from if wages are flat?"
1. Falling dollar making exports more expensive.
2. Increases in energy costs.
3. Monetary expansion by the Treasury to try to keep the stock & bond markets from tanking.
4. Accomodative interest rate policy by Fed to try to keep the stock & bond markets from tanking.
Posted by: Robert Duquette at July 19, 2004 5:44 PMExcept that the dollar will regain strength rapidly as the economy booms--even if the Fed doesn't raise rates.
Energy costs are falling.
There's no serious monetary expansion.
Posted by: oj at July 19, 2004 5:53 PM