Slave Wages Rise

Introduction
The ghosts of All Saint's Day are still hanging about, bothering Wall St. traders with fears of inflation. As reported in MarketWatch, U.S. productivity slipped to zero, while worker's wages rise. The most interesting feature in this report is not fear of that bogeyman, inflation, but what the analysis reveals about productivity ...

MarketWatch, now owned by Dow-Jones (Wall St. Journal), presented the numbers this way:

Real hourly compensation, 0.7% higher in the third quarter, is up 3.2% in the past year.

Higher unit labor costs could fuel inflationary pressures as firms struggle to recover their labor costs. Unit labor costs had been subdued in the past few years, rising by 2% in 2005 and by a mere 0.7% in 2004.

Productivity, a concept that's simple in theory but elusive in practice, is output divided by hours worked. Productivity gains are the key to higher living standards, higher wages, increased profits and low inflation.

The nation's economy had undergone a productivity boom in the past five years. After averaging about 2% in the post-war years, productivity gains have averaged 3.1% since 2000. Unit labor costs, by contrast, had increased an average of 0.8% since 2000.

The last paragraph is a give-away: most of the "productivity" gains are the result of wage restraint while prices rose. Productivity did not increase as a result of rising output per worker hour, as had been the case during the 1990s. Instead, monetary inflation (not stated directly in this article) and small wage increases account for almost all the price increases. The high corporate profits of the last few years are, thus, attributable to higher prices and low wages, not increased efficiency. This picture is confirmed by other, independent, measures which show that corporate profits are at all time highs and that the share of income and wealth allocated to the top 10% of earners increased by 20% since 2000.

The story behind this story is that earnings in this economy are shifted to top earners (shareholders and management) at the expense of lower wage workers (line employees). This is exactly the wrong silhouette, as what is required in the face of Baby Boomer retirements is increased output per unit labor input. Even the Libertarian Dr. Greenspan recognized that productivity (meaning increased efficiency) had to rise to forestall huge shifts of national income from workers to retirees. But since Conservatives took charge in 2000, efficiency has not increased; instead, U.S. national debt and the negative balance of trade skyrocketed. Both of those financial indicators show that Americans are not paying their way, as they measure domestic and foreign borrowing, respectively. Taken together, all of these indicators reflect an economy seriously out of whack.

People may draw whatever conclusions they fancy, but my conclusion depends on this fact: the economy is not a will o' the wisp arriving with the morning fog. The economy is the direct result of POLICY, decisions made in government and corporate offices. Things are as they are primarily because we made them that way. Therefore, if this economy does not perform as it should, different decisions need to be made. Decision making is, of course, the subject of POLITICS.

WalterB - 08:36:02 - Thursday, 11/02/2006

Last update: 11/11/2007