This page has been archived and commenting is disabled.
Guest Post: Slump Prods Firms To Seek New Compact With Workers
Submitted by TraderMark at Fund My Mutual Fund
A pretty solid piece in the Wall Street Journal on themes we've discussed quite often; essentially as the globe flattens and labor becomes more "disposable" (if you will), structural changes that are little discussed are happening slowly but surely. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] All the Great Recession has done is accelerate trends that were already building. Borders will become less meaningful and more people will be forced to move where the work is, and I don't mean within states - but among countries. In my vision of the future this will accelerate - it has happened in many parts of the world (Polish going to Ireland, Philippinos to Dubai) but Americans have been mostly immune.
As for America we have a lot of major issues in our employment structure - I cannot think of any other modern "1st world" country where the employer shoulders the health care cost. You simply cannot compete (on cost) on an even playing field with firms in countries where health care is government sponsored. However, since half the country does not wish to have government sponsored health care - the country is in a box.
I'm not as sure on the retirement benefit issues in terms of how most other countries do it, but in a general sense there is far more of a "high tax, government sponsored" structure there as well. But even within the US we can see in just 20 years the share of employer v employee has gone from 70 to 30% to nearly 50/50. Is it obvious in any 1 year? No - it's a long term structural change. And that's not even touching on the whole 401k grand experiment, which in my opinion (in due time) will be exposed as a complete disaster. Time has a great cover story on how it has essentially failed (a position we've long held) - we'll post it when we have time.
Now we do have some fascinating dichotomies - especially between the public and private sectors. While the private sector has been shedding benefits and shifting the burden to the worker, the public sector has been mostly immune. We harp on this often - this is because private companies actually need to make a profit at some point to stay in business, where government need not - hence the Ponzi scheme aspect of public worker compensation. It has no need to adjust to what the market can bear because the government will either (a) raise taxes or (b) borrow, beg, steal [or print] money we don't have. At some point this discrepency between the 2 main classes of worker will end badly, but who knows when. This can also be seen in retirement benefits - much of the country's remaining pension plans reside in the public sector.
As for the private worker? It's going to be a difficult new normal, and again just as the losses of the past 15 years have been slow (i.e. adjusted for inflation median wages are stagnant) and hence not "obvious", I expect the same go forward. I call it "erosion" ... slow and steady losses that are incremental. Until one day you wake up realizing you've been running so hard, but have made no progress. Capital will dominate in this era, and labor will suffer - unless labor is protected (i.e. government). Even going into this recession, I was reading in 2007 how the greatest share of "profits" in US history were going to capital and the lowest share to labor (i.e. wages and benefits) ... I believe it only gets worse from here. The eventual outcomes are variable and potentially ugly as a very bifurcated society emerges.
***************************************
What we can see clearly is Americans will live a more transient work life, at least in the private sector - we can look to Japan to see this same example. [Oct 28, 2008: Pooring of Japan Too?] [Nov 17, 2008: Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime] They will work longer, [Sep 1, 2008: AP - Laboring Longer is Growing Trend for Americans] and for less - wages we pay simply do not make sense in a global competition for many industries. [Sep 4, 2009: Job Seekers Across America Willing to Take Substantial Pay Cuts] They will be required to be far more self reliant for long term savings rather than relying on the workplace for a security blanket. In return for this, they will get cheaper prices for goods at Walmart.
So we can talk about recoveries, recessions, expansions, whatever - but under the surface is a far greater structural change. Yes there will be a form of recovery but many jobs in the US have only been created due to bubbles or have no long place in a high cost country and hence will migrate away. [Dec 15, 2008: The Economic "Recovery"] We've tried to hide it to the American people via various asset bubbles - since the many are losing ground in wages/benefits we've tried to inflate their stocks and houses. That only works for so long. But we are on the EXACT same path yet again (perhaps we call this one the government bubble), rather than preparing and adjusting to this new era.
What is so sinister about the inflationary campaign our leaders are taking us on, is the #1 way Americans could best cope with the new reality is with a lower cost of living - that means deflation. Deflation in housing costs would be at the top of the list ... while traumatic for current home owners, if the median home price fell another 15-20-25%+ the top cost (rent or mortgage payment) would drop, allowing people to provide for themselves in a far more comfortable fashion for healthcare, retirement, college, et al. Home prices are still out of whack with long term ratios versus income and government is doing every trick in the book to keep it so. [Dec 6, 2007: Analysis - What Should Median Home Prices be Today?] Speaking of college, university costs in the country would be another area ripe for deflation. There are other obvious candidates. But our leaders do not want these things, they believe inflation - the most regressive tax on Earth - is a necessity and in fact a great thing. [Aug 18, 2009: Bloomberg - Deflation Theory is a Lemon We've Been Sold] So the end result will be the need for more and bigger bubbles to fill the gap between what people can provide out of income and the inflationary forces their government helps to push on them.
************************************
And this is basically where we are now - we can see it clearly in many corporate earnings reports. And let me be clear, I don't particulary blame companies - pure capitalists have one goal in mind: profit. It's not kumbaya - the effects on workers are relatively meaningless in that purely profit motivated system. The current situation, exaggerated by the Great Recession
(1) Corporations cutting workers / moving jobs overseas. Workers remaining are pressured on wages i.e. productivity through the roof [Sep 14, 2009: Global Wage Arbitrage at the Micro Level]
(2) Workers lack income to keep up with previous lifestyle
(3) Government steps in to provide the income gap - with handouts for home buying, car buying, you name it... [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] [Jul 30, 2009: Cash for Clunkers a Bit Hit, Government Asks "What Can we Buy You Next?"]
(4) ... while concurrently implementing policies that drive up asset prices in a misguided hope that stock/housing appreciation will make up for the income gap. Apparently not 1 lesson was learned from the previous decade.
This Ponzi can continue until step 3 no longer works i.e. the world stops giving government money to continue its policies. Then the government will move to the next step which we've only just begun now, and that is full on printing of money to keep the illusion going. When that fails, it ends badly.
Or we could try to address these structural issues through honest, frank discussions - a return to savings - a lowering of cost of living through deflation - and a period of relative discomfort.
Nah, forget it. I don't like pain - I'm American; I only deserve pleasure. Just kick the can for another decade... we'll deal with it then.
*********************************************
Via WSJ
- The deep recession appears to be drawing to a close, but not its effect on the workplace. Since the downturn began, thousands of employers have cut pay, increased workers' share of health-care costs or reduced the employer contribution to retirement plans.
- Two-thirds of big companies that cut health-care benefits don't plan to restore them to pre-recession levels, they recently told consulting firm Watson Wyatt.
- When the firm asked companies that have trimmed retirement benefits when they expect to restore them, fewer than half said they would do so within a year, and 8% said they didn't expect to ever.
- Changes like these are reshaping employment in America, injecting uncertainty and delivering the jolting news that pay can go down as well as up.
- The changes are eroding two pillars of the late-20th-century employment relationship: employer-subsidized retirement benefits and employer-paid health care.
Let's separate out health care in its own special section - again let me re-emphasize I don't blame companies, knowing people who run small businesses it is cost prohibitive. I know owners of small biz who do not even have health care for themselves due to cost. It's a broken system.
- Although employers pay a smaller percentage of health costs, their dollar outlays continue to rise rapidly, as medical costs do. Employers that offer health insurance spend an average of $6,700 per employee on it this year, nearly twice as much as in 2001 (this is just a disaster and the lobbyists appear to have won the battle and the war on any reform - I expect costs only to continue to skyrocket - how you can have 100% inflation in 8 year and we cannot figure out any true reform is a testament to the "bought and paid for" Congress. If you have never seen the 60 Minutes piece on how Medicare Part D was passed, and how all the congress people went to cushy lobbying jobs within 2-3 years of passing it, please educate yourself here. Just 1 of many examples - America is the only country on Earth that allows drug advertising (New Zealand used to be the other hold out) ... because as we all know, in 30 seconds you should be able to far better self diagnose than a professional with 20+ years of education. Another example - we are told the far cheaper drugs one could buy in Canada are unsafe for Americans ... I could go on, but why bother)
- (and partly due to that lack of reform....) The percentage of employers offering health-care benefits is 60% this year, down from 63% in 2008 and 69% in 2000.
- (more to come) In a survey by Hewitt last winter, 19% of large employers said they planned to move away from directly sponsoring health-care benefits over the next five years.
- (for those that still keep their plans?) In the meantime, workers' share of health costs is headed up. For next year, 63% of employers that offer health coverage plan to increase employees' share of the expense
Retirement benefits
- Employees have long been paying a rising share of the cost of their future retirement, as traditional pension plans dwindle. In 1980, employees contributed about 11% of the cost, according to the Labor Department. By 2006, their share was 48%.
- Just 20% of workers now are covered by traditional pensions, the department says. (I'd love what % of that is in the public sector)
- One effect of the trend is to heighten uncertainty, because employers can readily suspend their contributions to 401(k) plans. This year, hundreds did, including some nonprofits.
- Some shifts in the employer-employee relationship have been building for years, but the recession, by making companies acutely cost-conscious, has accelerated them.
- "I think we've entered into a fundamentally new era," says David Lewin, of the Anderson School of Management at the University of California, Los Angeles. He describes employers as "leery of long-term commitments," including both benefits and pay increases. (identical to what hit Japan saw about 10-15 years ago as they moved to model that emphasized the temporary worker)
- 16% of big companies have taken the previously rare step of reducing pay, for at least some, according to the Watson Wyatt survey; 61% have frozen pay.
- ... Some labor-market watchers think such situations could grow more common as companies tap temporary or contract workers to hold down overhead.
- (this one should chill you) More than half of 638 chief financial officers surveyed by a Duke University professor, John Graham, said they expected their companies to employ fewer people in 2012 than in 2007.
Cursory anecdotal example - ask around, there are countless people like this in the white collar now. The same who thought it would never happen to them as they clucked at the blue collar who went through the same thing a decade earlier.
- Bonnie Templeton is living in the new era. The information-technology specialist in Loveland, Colo., went to work for a small sign company last year in a job that pays about $42,000, just over half what she earned in her previous job at a university.
- Her new employer doesn't offer a traditional health-care plan covering most expenses. It has a high-deductible plan, under which she must pay the first $3,000 of her medical bills each year.
- Like most private-sector employers today, hers doesn't offer a pension such as the one her 89-year-old father collects via Exxon Mobil Corp. Ms. Templeton hasn't had her job long enough to qualify for the 401(k). In any case, she says, with her reduced pay, she couldn't afford to contribute.
- "You really are covering your own expenses," she says.
»
- 4457 reads
- Printer-friendly version
- Send to friend
- advertisements -
With respect to healthcare and retirement, the most competitive economies are not those where the burden has been shifted from the corporate sector to the government, but those where neither the corporate sector nor the government takes any active role, and workers are completely on their own, e.g. China. Since those programs in developed countries are paid for through either reduced profits (the U.S.) and/or taxes (Europe, also the U.S.), they are a cost of business, and at this cost of business, as with every other (cost of labor, weight of regulation, etc.), the Chinese and Indians easily have us beat.
Both the U.S. and European economies are no longer competitive in the global framework, full stop. Any discussion on how to rebuild the U.S. economy needs to start from that premise, rather than chase pointless fantasies of nationalizing healthcare or retirements.
So what you're saying is to make our economy more globally competitive we should reduce our standard of living to that of China and India? Are you Pascal Lamy?
Fund My Mutual Fund should definitely be added to the blogroll. consistently solid
3 words - ABOLISH THE FED!
Seems like supply-demand forces at work here. Big supply of labor means lower wages. Ditto big supply of housing, office space, retail space. Gold in short supply. heehee.
http://www.marketwatch.com/story/americas-soul-is-lost-and-collapse-is-inevitable-2009-10-20?link=kiosk">
http://www.marketwatch.com/story/americas-soul-is-lost-and-collapse-is-inevitable-2009-10-20?link=kiosk
off topic.
from an article on unemployment--
"..the total number of recipients dropped to 8.8 million in the week ending Oct. 3, ... down about 50,000 from the previous week. That decline is likely due to recipients running out of benefits, rather than finding jobs, economists say."
There are estimates of 1+ million people falling off even extended benefits by the end of the year. Are there any stories in the media about these desperate people? I used to read them by the bushel when we had a Repub president.
What do you want us to do to solve this?
Help workers, So that they can buy our products and services? Or lessen the size of healthcare costs to economy by removing the profit and abuse part from it? Reduce the risk of hedge fund manipulations on pension plans by giving it to secure, safe government control?
All the facts have liberal bias. Ha Ha
On the important topic of health care...you argue that it is hard for US companies to compete when all major competitors have gov't run systems which reduce their costs. however, I don't get the feeling that gov't run health systems in many countries are well run and efficient.
[One humorous example: The National Health Service has spent £1.5m paying for hundreds of its staff to have private health treatment so they can leapfrog their own waiting lists. More than 3,000 staff, including doctors and nurses, have gone private at the taxpayers’ expense in the past three years because the queues at the clinics and hospitals where they work are too long.
http://www.timesonline.co.uk/tol/news/uk/health/article6879553.ece]
In terms of the overall cost to an economy, I would think it possible to have a private health system. Certainly as a consumer I would prefer that. I would expect getting better care at a lower cost than through a gov't program.
If it _is_ possible to allocate and control healthcare through a private system then theoretically that could be an advantage. I do take your point, though, that it could be tricky to get there. And of course, the current heavily regulated system and the legal parasites that feast on it, etc, is not in particularly good shape.
In fact, I think that it is widely recognized that, for example, Euro economies are handicapped by huge gov't outlays and mandates which reduce productivity. This naturally includes health care.
In terms of 'waiting lists' in both the UK and Canada - citizens in both countries overwhelmingly prefer to have coverage for ALL members of the society than elbow our way to the front of the queue. In the UK you can pay extra to leapfrog but even that is not officially allowed in Canada. If resources were unlimited then these waiting times could be eliminated - but as America is finally coming to terms with - resources are not unlimited.
"We've tried to hide it to the American people via various asset bubbles - since the many are losing ground in wages/benefits we've tried to inflate their stocks and houses."
That only works if you actually have stocks and houses left to inflate. Some of us weren't able to get a home before the market crashed and we had to sell our stocks to pay the rent since we lost our jobs.
I have been telling my family for years that the the last 60 years have been an anomaly that will end soon.
After WWII, about half of humanity was locked into a concentration camp called "communism" and although they bought little from the West, they were prevented from competing with US workers. Europe and the developed East (Japan) were totally destroyed by the war they started. European and Japanese colonies (in Africa, the Far East, and Korea) were soon freed from their old overlords. The entire world (not locked behind the Iron (or Bamboo) curtain had only one place to turn for the machinery, goods and capital to rebuild and one principle market for their commodities--the US.
This meant that or exports were in great demand and our imports were cheap.
Consequently, the working-class American could live much better than worker in the history of the world. Americans saw this not as an accident of history that would only last a limited time but as a permanent condition due to our virtues and abilities.
Rather than enjoying some of the bounty and saving and investing the rest we thought we could spend it all because there would always be more where that came from.
Our government was able to promise everything to everybody and did. They promised free protection to anyone who would ally themselves to us against the communists, free policing of all the worlds trouble spots, to accept unfair competition from our trading partners to keep them as allies, virtually free pensions for Americans (Social Security), virtually free medical care to most (Medicare, emergency rooms that turn no one away), subsidized palatial homes, etc., etc., etc.
Instead of staying focusing on maintaining our ability to compete and accepting the gradual return to a more normal situation in which American's lifestyles was a sustainable "better" than the rest of the world but not an unsustainable "order of magnitude better".
Our government supported deadbeat citizens who actively tried to destroy their employers by demanded more pay for less work (notably unions but really almost everyone) or who actively avoided work (welfare culture). They supported deadbeat allies that would not contribute sufficently to their own defense (Europe and Japan) and supported kleptocrats (in the Third World) because we didn't want them turning to the Soviets or out of a weird sense of guilt that demanded not that we teach others to fish and leave them to it but required us to send enough fish to feed everyone and support corruption also.
Whether we can wake up to the reality that an era has ended and we must now work harder and live less well (but still better than virtually all our ancestors and contemporaries) while accepting that we cannot rule (or support) the rest of the world, and have no right (or obligation) to do so, and must primarily be responsible for taking care of ourselves (rather than demanding our neighbor support us via the government) remains to be seen.
Regardless, the current standard of living in America is unsustainable (and always was). It had to end and the end is here, now. Prosperity for anyone who works hard is within our reach, wealth for all (regardless of their own efforts) is not.
Try to juggle a dozen objects and you will drop them all--you can keep the few essential things in the air your entire life if you try hard enough.
Yep, you pretty much nailed it. People my age (45) have been singularly lucky. The last 30 years have been a golden age that won't continue and won't return. The sad fact is that Americans are not smarter, more entrepeneurial, etc., etc., than the rest of the world. Thomas Friedman was almost correct. The world is going to flatten, but it's standards of living that will even out.
Hmmm,
I prefer to think in the frontiersman sense of america. Things don't have to be that bad, it's just that their are so many programs in place that enrich a select few at the expense of many. A better society needs to evolve, the current one should be flushed down the toilet. I know their are angry people at the bankers and tea parties and such, but where was the outrage at iraq? The american government created a slaughter and living hell out of that place. The time is coming where we can no longer enable these people to continue, repeat after me, quiet conformity is consent, quiet conformity is consent. People do not change unless their own safety is quite substantially threatened, and this is the ongoing problem that we are facing. Too much comfortable conformity while the people with the guns quietly make decisions on how to enrich themselves at the expense of everyone else. Where is the outrage!
Still, if you live outside a fringe group and your mother's basement, it is pretty clear that it was Saddam Hussein who created a slaughter and living hell in Iraq that lasted for years. In fact, the US broke that cycle and Iraq has the opportunity to achieve a semblance of normality.
You could make an argument that the facts of Iraq and of our overseas warfare in general have been hidden, obfuscated or distorted to meet certain political and financial needs. I'm not saying it's right (because it's reprehensible), but that's what has happened. As to why Americans may be up in arms now, well, it is much harder to cloak the collapse at home. Where you personally know people who've been out of work for many months, or had to get McJobs, double-up on housing, get foreclosed on. The common man can't believe the Green Shoots mantra, simply because he's surrounded by lots of crap and no green anything.
And just to make you feel better, there are 100 million guns in this country and not all are owned by the gummint. But I wouldn't recommend shooting a banker--it's much better to have you and a posse go down to your local Fed-member bank and withdraw or transfer all your funds out of there. That really hurts 'em where they live. It would take no more than 3% of all customers withdrawing their cash to kill any bank. Financial Fatwa!
Don't live a lifestyle you can't afford. If you do don't expect me or the govt to pay for it. Don't spoil your kids into thinking everything is puppy dogs and ice cream. Buy your own health insurance and fund your own retirement. Problem solved.
"..but Americans have been mostly immune.."
WTF....this clown is certainly clueless, but then he does sound like the typical Ameritard, although there do appear to be one or two neurons discharging. There are little to no more jobs which can be offshored, although many expatriate Americans are all over the globe. I know far too many who have left this pathetic country since 2001 for future employment! And the ONLY compact with employers is to face the CEOs down with a shot gun, and suggest they go offshore, ASAP! As long as we allow the corporation or the state to monopolize land and capital, we will always be screwed! Capitalism is dead, and it will become evident to even the dullest by 2012!
And what is your alternative to capitalism? Do you along with Michael Moore want to centrally plan things with a politburo churning out 5 year plans with a "we pretend to work, they pretend to pay us" mentality? If that is not your vision, then pray tell us what superior economic system you have in mind.
Outstanding post. Thank you.
FWIW, drug advertising is perfectly legal in Brazil.