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When The White House Touts Falling Wages
Wolf Richter www.testosteronepit.com
150 factory workers in China threatened to jump off the roof of an iPhone factory unless they received a raise. Similar stories are accumulating. Inflation, especially in food and other essentials, has been rampant over the last few years—and to make ends meet, desperate workers sometimes take drastic measures. These anecdotes underscore a major trend in China: skyrocketing cost of labor.
In the US, it’s the opposite. Since 2000, real wages (adjusted for inflation) have declined. The White House even touts this horrid statistic in its just released paper, Investing in America: Building an Economy That Lasts. Clearly, the paper is not intended for the rank and file. It outlines how current policies are making America competitive with low-wage countries like China. And one of the principal strategies is ... lowering wages:
The paper also touts the administration’s claim of having created 3.2 million jobs over the last 22 months. But these numbers are based on surveys, formulas, and statistical adjustments. The BLS’s Employment Participation rate, which the paper wisely leaves unmentioned, measures the percentage of people age 16 and older who have jobs. It’s the least corruptible employment number available—and at 58.5%, it's where it was in 1983.
BLS Employment Population Ratio
The long decline from 64.7% (April 2000) parallels another statistic in the paper: from 2001 - 2007, three million manufacturing jobs were lost. Those were the Bush years, obviously. But what happened during the Obama years? Unmentioned, but just as bad.
From the White House paper
The tiny hook at the bottom is the ballyhooed uptick. But during the next economic downdraft, the line will plunge again. And that slack in employment has contributed to the decline in real wages.
The problem for a high-wage country in a globalized economy is that jobs will be globalized as well. The decision whether or not to offshore production comes down to calculating the total cost of doing business overseas. This includes worker productivity, transportation, supply chain risks, legal and political risks, currency risks, intellectual property risks, expenses for expats, delays, flexibility, environmental issues, taxes, import duties, etc. Hence, for US manufacturing to be competitive, wages don’t need to match Chinese wages, but they need to be closer. That approach in wages has been happening—at a great expense to US workers. And now there are some results.
The paper mentions Ford and Caterpillar as examples of large companies that have announced investments in the US to ‘insource’ jobs from overseas. Those announcements, when they do occur, are made with great political fanfare.
Yet the same companies are still making massive investments in China and other low-wage countries, though no US politician takes credit for that. And there are many others. Merck disclosed from its headquarters in New Jersey that it would build a new facility in Beijing, part of its $1.5 billion investment in China. Nissan, which has large plants in the US, just announced that it would build a plant in Mexico. And government-subsidized solar panel makers, well, for how they just started a trade war, read... The Trade Debacle with China.
So the net of outsourcing and insourcing among large companies still favors outsourcing. But under certain circumstances and on a small scale, companies might try to insource. And that is a step in the right direction.
Smaller companies face different dynamics. It has always been expensive, difficult, and risky for them to offshore production. Many have done it, lured by cheap wages, only to learn costly lessons. And now anecdotal evidence is piling up that they’re having second thoughts. The paper lists KEEN, a footwear maker, and Master Lock as examples of companies that have brought back jobs. I personally know one consumer products company that shut down its manufacturing operations in China and relocated production back to the US (though it still operates plants in other parts of the world). And this is a trend that will likely accelerate.
But low-wage countries will continue to draw jobs away from the US. The numbers couldn’t be clearer: in 2011, the trade deficit with China hit another record north of $320 billion. So taking credit for a wave of ‘insourcing’ from China, as the paper does, has an aura of political grandstanding.
But you can't blame the Chinese. They're trying hard to get into the circle of developed countries. Even with products that, well.... Merde! Chinese Wines Did What to French Wines?
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Part of the costs for employment overseas needs to take into account how much food stamps and unemployment will cost the US (tax payor) and how longer term this is unsustainable and I might add ahem unpatriotic. Can we get anyone in this country to think beyond the short term?
If the US just stops bitching and lowers its standard of living to that of the countries with the lowest labor rate, then the US will be able to compete and all will be okay.
Lest we forget, the whole point of competing economic philosophies is to discover the economic system which provides the lowest standard of living for its participants.
Good luck enacting that move.
Such policy change is being enacted in Wisconsin and Ohio by having public sector, union employees pay a small portion of their behefits costs. It has led to many outbreaks of adult babies throwing fits across Ohio, Wisconsin, and Washington DC.
"adult babies throwing fits across Ohio, Wisconsin, and Washington DC."
...and they should be. As US standards of living decrease due to decades of failed unfair trade policies and deregulation, everybody in the US should be throwing fits.
+infinity on this. There is a reason why the police focus on the drug trade so much - and not for moral reasons or to better society. Uncle Sam hates' businesses that DON'T pay taxes (unless those businesses i.e. GE, pay lobbyists and lawyers and politicans to do their bidding). Plus, it's great when they can monitor those drug dealers, let them get sales and build some wealth, then get a serch warrant, confiscate the money = reap profits for state. Awesome racket, really.
Disagree on the sales tax part (would be too hard to execute), but the rest I 100% agree with. I've always said those who make under 33K/year should NOT have to pay Federal income taxes. Imagine the boost to the economy, the stress off of people's back, that would be. It would also force state to have more progessive and competitive tax code, which would spur small business (and allow them to not have to worry about raising wges as much because......it would come from killing the income tax for poor-to-median workers!).
I am for sure. Although, it will be irony that the rope I use to hang myself with everytime I look at my paycheck, was Made in China.
outsourced companies are essentually fair weather friends instead of patriotic corporate citizens. good riddence. I don't want any of them back. uncle sam should revoke their licences.
fuck the stupid sorry excuse for management!
http://expose2.wordpress.com
I noticed our chocolate ration went up from 6 oz to 3 oz as well.
Crunch all you want,
I aint leaving the house for less than $250 cash for a days work.
LOL! This information should suprise no one. It has been blatantly obvious to anyone with half a brain cell that in order to have a one world currency and centralize power center the entire world must come to economic parity. If your country has a high standard of living, then there is only ONE direction for this to go moving forward. Good luck with the $250 per day. If you live in a rural area, there are certainly some independent "farming" jobs that might get you there.
"current policies are making America competitive with low-wage countries like China"
Nah, you can't even compete with the Talibans.
THEY GOT YOUR CIVIL RIGHTS WITH THE NDAA!!!
They got your f**** ass.
Like it or not.
Not just NDAA.
when i got my first job at the age of 16 as a short order cook in 1976..minimum wage was $2.30 an hr.. with hard work and dedication and several rasies of 5 and 10 cents an hr, that i asked for.. when i quit 5 yrs later for better employment i was making $4.35 an hr. which was a dollar more then the minimum wage in 1981 of $3.35 an hr
thank god i'am licensed plumber today ..!!!
"thank god i'am licensed plumber today ..!!!"
...and most people are idiots. We do all our own carpentry, plumbing, and electrical work.
Not "all". It is a function of age, expereience, training (usually from Dad), and time.
I am an Aussie,
I noticed more and more foreign brand cars on the TV (US Hollywood) So I could clearly see the imports!
You guys should have ostracised foreign cars. Instead Hollywood cut deals with foreign firms to "advertise" the foreign imprt cars.
Cigarettes were pushed on women in the 30-40's by glamour whores.
Foreign cars pushed on your teens and "aspirational" citizens.
You reap what you sow. If you have a beef, have a beef with Hollywood and associated executives and movie makers.
I've heard this argument before, from a GM line worker, 30 years ago. At the time I had just bought a second hand, 4 cylinder import for the mileage. He seemed to think that I should have bought a GM car. At the time I was making $5 an hour and he was making $20 an hour. In other words the $5 an hour man should tighten his belt and lower his standard of living to subsidize the $20 an hour man. I told him when GM made a car I could afford, and could afford to buy gas for, I would be glad to do so but did not see much chance of this as long as he was making 4 times as much money as I did.
Do not equate a foreign manufacturer's name plate with "not made in America".
Just bought a foreign car. I do not feel the need to support union car workers who support Obama. I will attempt to sew my own clothes, grow my own food, etc. to make a difference, but I will not sacrifice quality for GM. I looked at ways to invest in U.S. manufacturing, but Americans lack the will to buy local at significantly higher prices. Hopefully, I can become a job creator after the crash.
Falling wages don't have to be a bad thing-they would be for those who are too leveraged to debt if the collateral is decreasing in value-
Under gold standard wages would rise and fall as the forces of trade balance dictated inflation and deflation-
When deflation occurred-corporate profits suffered and so the pass through would show up in wages-but as affordability decreased-lower prices followed and sometimes even led the way lower-
Of course today we give bankers hundreds of billions of taxpayer dollars (hot money) and let them speculate in the commodity markets-keeping prices too high-
As affordability/falling wages/employment/ and buying sentiment falls out from under prices-it can only go for so long and then prices will have to drop and maybe drastically-
cheap labor, one of many reasons the US population is most incarcerated in the world
"The United States has, for instance, 2.3 million criminals behind bars, more than any other nation, according to data maintained by the International Center for Prison Studies at King's College London.
China, which is four times more populous than the United States, is a distant second, with 1.6 million people in prison."
http://www.nytimes.com/2008/04/23/world/americas/23iht-23prison.12253738.html?pagewanted=all
Pay scale for federal prisoners who work outside of UNICOR in prison maintenance, in dollars per hour511: $0.12-$0.40
http://www.prisonpolicy.org/prisonindex/prisonlabor.html
crime pays that's why.
America's social structure is so messed up that crime pays more than honest day's work. Why study STEM to cure cancer when you can gamble with someone else's money on wall street?
http://online.wsj.com/article/SB1000142405297020412420457715455370322850...
The only work left is crime, guaranteed oppression.
The former CEO of GM once was interviewed about sending manufacturing to Mexico. He brazenly said it was simply cheaper and that they were planning on outsourcing engineering next.
Then he posed a salient question asking "if I promise to build all the cars here, will you promise to buy them?"
And that's the crux of the problem: Choosey consumers choose CHEAP.
People want to act like victims, but you're the ones buying those XBoxs and iPads from Foxconn.
The truth of the matter is, Americans on a global scale have lived too large compared to the rest of the world. We deserve lower wages. And the Chinese could use a raise.
The only problem is finding a politician that will admit this. And help Americans adjust to living on $8/hr.
By pushing for mass transit because car ownership is no longer realistic for every American. And reducing sprawl and eliminating expensive roads.
By finding ways to make education and health care cheaper. And we all know both are bloated pigs that could EASILY be cut back in cost.
I'd go on about affordable housing....but that is taking care of itself.
By squeezing the billionaires in our midst to pay for infrastructure upgrades that allow us to live without cars and have cheap renewable energy.
Such that we can live on $8/hr.
*Realize, $8/hr globally is a very nice salary.
When did I get a choice of where my xbox was manufactured? The choice was made for us.
Maybe if top tier employees were payed at single digit multiples of lower tier workers instead of high double-digits those companies could be just as profitable without needing to undercut labor rates? A multimillion salary and pension here and there and soon we're talking real money. And how is it that two people, both working 60 hours per week, one's compensation can be valued at 30x the other's? And we're not talking janitor vs CEO here, a snr electrical engineer making 100k per year is contributing significantly to the product existing, but somehow a manager with no knowledge of product creation is worth 3 million? Seems to me both are as easily replaceable, as no management position sits empty for any statistically significantly longer period. In fact usually those are filled quicker than the engineering position by the next crony in line while the engineer position is actually interviewed for.
Swarmee,
I enjoyed your post. You make some interesting points.
I am a retired engineer. I spent the last ~10 years of my career managing new product development in the consumer electronics industry (I will withhold the names of my last two employers, but I guarantee that you know who they are). I have seen wholesale outsourcing of new product development in that industry during my career. One sobering lesson many of us learned was that it CAN be done as well over there as well as it is done over here. Engineers and scientists in India and China are every bit as capable as engineers and scientists in the US, and they generally work for much lower wages. Raw labor is plentiful there, and it comes at a lower cost than in the US. The cost of building a factory over there is generally less than building it here. The environmental regulations are certainly more lax over there than here. The quality of the basic components made there and used in the assembled products was satisfactory, and they were generally less expensive than the basic components made here. The quality of the finished products was also satisfactory (quality can improve over time as processes and procedures are refined and improved). The consumer markets for those products were also growing quite fast in the countries where the products were developed. The bottom line is that outsourcing is not simply a product of "politics". It is a requirement for survival in the jungle. When company "A" outsources product development and produces a product of acceptable quality at a much lower COGS, company "B" must respond... or company "B" goes the way of the dodo bird. Companies know this. Politicians really can't do much to stop this even if they want to. Neither Mitt Romney or Ron Paul or any other POTUS would be able to reverse the tide until new product development can be done as well in the US as any other place in the world with a COGS that is acceptable to corporations. That IS the bottom line.
Barry, is that you???
"Barry, is that you???"
I know not of whom you speak.
Soetero
But my comment was a mistake, not meant for your comment...whoop-sie.
CEO jobs "CAN be done as well over there as well as it is done over here." And for a LOT less cost. Ship the fuckers over there.
Many US companies that sell consumer electronics are basically becoming slimmed-down sales and marketing companies. They have the R&D and manufacturing done abroad, and they have the finished products with their brand name on them shipped to various locations around the world for sales distribution. Many US companies have their technical support call centers for their products located abroad as well. Some US companies also outsourced their accounting and IT functions (among their back office functions) as well. Outsourcing these functions allows these US companies to operate with lower overhead. As far as the CEOs go, they could be located abroad so long as they can communicate effectively with their resources.
Hi Batterycharged,
I really enjoyed your post, really enjoyed it. I have a suggestion. Why don;t you run for office and use your considerable communication skills to convince Americans of all the benefits that would accrue if they would unselfishly diminish their pay to 8 dollars an hour. This is a message that all would be eager to hear, and enthusiastically embrace; you have already sold me. No contemporary politician I am aware of has so elegantly stated the case for an 8 dollar an hour America. Your written blueprint is brilliant so give just a little of yourself, to bring about the new American utopia. Thanks.
Oh good I'm so happy my wages are going down. Idiots. All for fatter corporate profits. Then they crapped on the place where Corp profits get realized, the stock market. Turned that (back) into a rigged game, so everybody left. Nice going, assholes. Hey, I have an idea! Let's elect a 1% Wall St LBO snake named Romney! Please, sir, can I have some more???
His name is Shit and will be the next emperor of collusion and corruption.
Up first on the auction block is the bill of rights.
Yes. Interested in seeing what the "southern" response is to this mASShole.
Eat yer peas
Between inflation and lower wages - Peas will be a luxury for many.
Shuggah! Oh, Hon-ee Honee! Poverty is so cool! I can't wait until we're making cheap pot metal table cigarette lighters that say "Made in Occupied America"
Shuggah! Oh, Hon-ee Honee! Poverty is so cool! I can't wait until we're making cheap pot metal table cigarette lighters that say "Made in Occupied America"
OT
I have a barrel made from wood slats and iron banding with a big bold "Made in Occupied Japan."
I've always wondered whether it was valuable but never bothered to look into it. Any thoughts?
The tricky part of the unit labor chart is I can't tell when it was done. Was it done when Euro was as 1.42 or at today's rates?
Employment participation chart is definitely one to follow going forward and see how our recovery(?) is going.
mission accomplished!!
American workers were warned, over and over again over the last three decades, but chose denial of and diversion from reality. Perot sounded the alarm, forcefully and repeatedly in 1992. He warned of the "sucking sound" of millions of high paying blue collar and production jobs moving overseas, like an airplane cabin de-pressurizing at 30,000 feet, Others, policy "wonks", have stated repeatedly in the press over the years that the American standard of living must "necessarily fall", and those statements would not stir even a whimper of protest. The fall of American wages to 3rd world levels was the agenda of both parties for the last 25 years, but lo and behold, no one noticed. Funny that. But the policy of both parties to lower the US standard of living to a level where Americans would BEG to join a new world order also included something new; look at all this credit we are providing. You don't have to sink into economic degradition, we stand ready to HELP! And those were the same people behind the continuous stream of legislation sending those jobs overseas. Hank Paulson made over 50 trips to China during his tenure at GS. So today, for many, if you lose your job it is akin to receiving an economic death sentence, especially if you are over 45 years old. Your elevator freefalls to the basement. Keep voting for one of the two wings of the bird of prey that have put millions into circumstances of quasi impoverishment And on a lighter and more optomistic note I present: http://www.ronpaul2012.com/2011/12/24/new-ron-paul-ad-the-one-you-can-trust/
Fuck Hank Paulson, hell awaits that roach.
You do understand Ron Paul's Economic advisor, Peter Shiff (don't know if he still is or not), is hell bent on removing the minimum wage entirely. If you think wages have fallen over the last 25 years - just wait till they pull the rug out [min wage].
Paul would impose tariffs on foreign goods. That is what we did pre-income taxes.
GS RTC,
Are you kidding? The minimum wage is immaterial. As a young unskilled worker in the mid sixties I earned 2.25 an hour, enough to afford a new car and still pay my parents 80 dollars a month room and board. Today I see grown men travelling on skateboards and 79 dollar wallmart bikes, hordes of them and I live in one of the richest areas of the country, SF Bay. And they all wear clothing that proclaims I am a serf. The labor market is now as manipulated as Stocks, Bonds, PM's, et al. The country has been flooded with cheap labor to drive the price pf labor DOWN. Calculated in today's dollars my salary of 1964 would be 27 dollars an hour, but TAXES have quintupled since then. Don't worry about them pulling the rug out, they already have! And you're begging for a 7 dollar minimum wage?
GS, Don't forget, in 1964 you could still get paid in silver dollars, so your pay was more like $60/hr or so. And your payroll taxes were a lot lower, about 2%. So much for the good old days.
Since eliminating the minimum wage is politically impossible, yet quite necessary, the gov't is making it irrelevent through inflation. It is the only politically palatable way to make American ignorant unskilled labor competitive with the rest of the world. This has been quite clear to me for a long time, but never having seen this in print I'm surprised so many others think the same way.
It can be material, just not in a way it is supposedly intended. If someone cannot afford hiring above minimum wage, then he might proceed with no hiring (i.e. net effect is higher unemployment) or hiring someone illegally (i.e. immigrants who don't know the law / don't care / cannot claim they have any right for minimum wage since they are in the country illegally). So, in fact, minimum wage creates false sense of protection and entitlement for citizens and ceiling for illegals' wages. The net effect is higher unemployment for 'locals' and increasing criminalization of labor market together with increasing corruption around immigration procedures. Not to suggest that removing minimum wage would solve all of that immediately, but it would definitely cripple incentives for bringing illegal labor since centralized and legislated benchmark would be removed.
I don’t disagree with you most of what you said. My only point and I think others that replied to my post may have missed this also, is the entire wage structure would collapse at a faster pace. There are studies that suggest the impacts diminish as you move up the wage structure; however, given the state of the economy and our political climate [our bought and paid for congressmen], whose interests are served by removing the min wage?
People seem to zero in on minimum wage and don’t think it impacts “them”. Median incomes and wages are falling fast enough – no need to turn the race to the bottom from a marathon to a sprint.
GS,
The minimum wage is a red herring. The fact is 80 percent of the US population has been experiencing forced downward mobility for at least 30 years. The effect of that is really showing up now because many of those affected tried to stem the slide starting 20 years ago by embracing "Buy Now Pay Later", a fatal error, now bearing really horrible fruit as credit lines are terminated or interest rates jacked as higth as 39 percent on current balances. And lately loans are being called, something unheard of heretofore. For many, the ship is going down. They are not racing there, they are being ground into dust by a system that funnels wealth from the bottom up. For 200 plus years of US history government protected American labor and business interests and then began doing the opposite after WW11. It now serves only one of those interests. A catastrophe is taking place right now right in fromt of our eyes. If you don't see it try to figure out why. And if you do see it, what can you do to change it?