An OCED Study Explains In Part Why Average Workers’ Pay Wages Aren’t Going Up

Image result for cartoons about stagnant wages income inequality

Here’s the million dollar question. As the US employment numbers are at record lows, and the stock market is at record highs with the US economy humming along, looking strong, why are average front-line workers not seeing the expected increase in their pay checks?

As per the 6/13/18 NY Magazine article by Eric Levitz, “The second question is easier answer than the first. There is essentially no evidence that the president’s tax cuts (his sole piece of major economic legislation) did anything to significantly improve America’s macroeconomic performance. Since that legislation’s passage, economic growth in the U.S. has actually slowed; consumer spending and wage growth has been tepid; and business investment, unremarkable.”

Image result for cartoons about stagnant wages income inequality

“One can reasonably credit Trump for successfully avoiding any policy mistake disastrous enough to derail the expansion he inherited (a preemptive war with North Korea, for example). But his entrance into the Oval Office did not coincide with any significant, positive change in the economy’s preexisting trend line. If you do not own a pass-through business or a significant amount of corporate stock, chances are Trump has personally done nothing to significantly improve your economic circumstances.”

“On the other hand, Americans are deeply indebted, many are stuck with part-time jobs, and wage gains have been so disappointing, their weakness has challenged fundamental premises of mainstream economics: Simply put, you aren’t supposed to be able to pay workers this little when the unemployment rate is this low.”

“And on 6/12/18, the big picture on Americans’ paychecks grew even darker: In May, U.S. inflation accelerated to its fastest pace in more than six years — and wiped out what little wage growth the typical American worker had seen over the past 12 months in the process.”

Link to article: Most Americans’ Wages Have Actually Declined Over the Past Year

See: How To Fix Stagnant Wages: Dump The World’s Dumbest Idea – Forbes

See: Why Wages Aren’t Growing in America – Harvard Business Review/ 2017

See: For most Americans, real wages have barely budged for decades/ Pew Research

See: How To Fix Stagnant Wages: Dump The World’s Dumbest Idea – Forbes

Here’s the rest of the story…

On July 5, 2018, Brandon A. Weber of BigThink.com penned the following report, “Is the USA the best place to work in the world? OECD study says …”

The 2018 OECD Employment Outlook of 2018, released on July 4, has some alarming news for residents of some of the key countries involved—especially for the good ol’ U. S. of A.

“The Organization for Economic Cooperation and Development, or OECD, “provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies.”

“Right off the bat, it has some interesting news: for the first time since the 2008 global financial crisis that created the Great Recession, unemployment rates are below or close to pre-crisis levels in almost all countries. That’s what usually happens after a recession, and is not necessarily due to any government policy or officials.”

“We work as hard or harder for less money in our paychecks than pre-recession.”

“However, not surprisingly, labor incomes of the top 1% of wage earners have increased much faster than those of median full-time workers. Womp womp.”

“It sounds a bit counter-intuitive, doesn’t it? I mean, more jobs and less unemployment usually mean wages go up—right?”

Image result for cartoons about stagnant wages income inequality

“Not always. What the OECD refers to as a “slowdown in productivity growth” means that companies that invest in high tech solutions to production save money on labor costs, and simultaneously, jobs that require a higher and ever-higher level of skills (computer and technical skills as well as complex problem solving, critical thinking, and creativity) are receiving the wage increases much faster than those that don’t require those.”

https://read.oecd-ilibrary.org/employment/oecd-employment-outlook-2018_empl_outlook-2018-en#page53

OECD (2018), OECD Employment Outlook 2018, OECD Publishing, Paris.

Throw in the declining coverage of unemployment benefits that several countries now have, and you see people forced back into the workforce at lower-paying jobs than they left behind. Take a look at this graph to see how much notice workers in the United States are given that they will be jobless. Hint: Zero. (There are spotty laws on the books that are supposed to provide a few months’ notice in the U.S., but they’re rarely enforced.)

https://read.oecd-ilibrary.org/employment/oecd-employment-outlook-2018_empl_outlook-2018-en#page151

OECD (2018), OECD Employment Outlook 2018, OECD Publishing, Paris.

As the report was launched in Paris, OECD Secretary-General Angel Gurria summed it up: “This trend of wage-less growth in the face of a rise in employment highlights the structural changes in our economies that the global crisis has deepened, and it underlines the urgent need for countries to help workers, especially the low-skilled.”

Image result for cartoons about stagnant wages income inequality

Some more takeaways from the report:

  • The United States ranks 3rd worst when it comes to the share of households earning less than half the median income in 2016.
  • The U.S. ranks second from bottom (only next to Israel) when it comes to income inequality. In other words, it’s nearly the worst in the world.
  • The United States spends less on help for active measures that help the unemployed and workers considered at-risk than almost every other country.
  • Unions represent just 12% of workers in the United States, ahead of only Turkey, Lithuania, and South Korea. This makes a critical difference in both unemployment and wage growth.

The full report is available here.

 

3 comments

  1. Gronda, the OECD is a highly reputable and data centric organization. So, many factors that have suppressed US wages in my view dating back to the early 1980s. The offshoring of jobs is a key part, but also the improvements to technology. We do twice the manufacturing now in the US with 1/3 fewer workers.

    But, I would add the Information Age has made publicly traded companies live and die by quarterly earnings versus expectations. That coupled with more stock options/ grants and cash incentives, means management keeps a lid on fixed cost.

    I remember when the merit/ promotional raise component was placed within the average budget increase, when it was often kept separate. Now, managers must manage to an all encompassing budgeted increase like 3%. Keith

    Liked by 1 person

  2. Dear Keith,

    You make some good key points. There are multiple reasons for 3 decades of stagnant wages. Diminishing the power and membership of unions is another factor.

    Keeping down operating costs such as pay raises, contributes to a culture of work dissatisfaction. The worker at a place like Wells Fargo, could work like a dog, but frustration sets in when there is little reward.

    I worked for a company like Continental Airlines which figured out a myriad of creative ways to make working for them attractive, like flexible work schedules, health insurance for even part-time hours, special trips for employees. Most corporations can’t be bothered with this kind of creativity.

    Pensions have gone the way of the DODO bird. I’m surprised that there hasn’t been more of an uprising. But someone like President Trump was able to make heyday with these people’s anger and we are paying for this short-sightedness.

    Hugs, Gronda

    Like

    • Gronda, you bring back a lot of tactics. Companies negotiated with unions by providing future benefits in pensions and retiree medical benefits instead of higher wages. These future benefits were not accounted for in the same way, so impact on earnings was less than pay. Then, the accounting rules changed and companies started to curtail the benefits that were not vested and terminate plans for new employees. Yet, the depressed wages were not addressed.

      As a manager, I have seen upper management say the salary budget is tight because earnings are down or the economy is down or either is expected to turn down. There seemed to be a reason for keeping a lid on it. But, what angered me most, is they would announce the salary budget and then ask you to move on lower performance rated employees. So, when the employees who would have gotten the smallest or even no raise were removed from the equation, it meant better performers had to get a smaller increase to keep the average at the budgeted percent. If was going to give Gronda a 6% raise and John a 0% raise for an average of 3%, if John is let go, I must now give Gronda a 3%. This happens routinely. Keith

      Liked by 1 person

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