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Incredible Shrinking Workers’ Income

June 12th, 2011 at 11:58 pm David Frum | 91 Comments |

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fedgraph1 Incredible Shrinking Workers Income

Workers’ share of U.S, national income is collapsing.

Two questions for the Republican presidential candidates:

1) Is this a problem?

2) If yes, what can be done about it?

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91 Comments so far ↓

  • TJ Parker // Jun 13, 2011 at 12:07 am

    Isn’t this what is meant by “compete with China” and “let the market decide”?

  • pnwguy // Jun 13, 2011 at 12:34 am

    David:

    Even if I don’t always agree with your prescriptions to solve the economic questions, I do applaud that you constantly challenge the GOP orthodoxy about the economic problems of the middle class. That’s especially something the Republicans want to completely ignore the setbacks when they have happened on their watch.

    • Smargalicious // Jun 13, 2011 at 6:59 am

      1) Is this a problem?

      No, it is a market correction that has been long in the waiting. American union thugs artificially inflated worker wages of the last 40 years, and the bubble finally popped with globalization. Why should a corporation pay a union thug $25+ per hour with luxury benefits when it could get the same output from a worker in India or China for only $15 a day?? The math is simple.

      2) If yes, what can be done about it?

      The answer was no. It’s only a problem for American workers who have to deal with a lower standard of living.

      Next.

      • llbroo49 // Jun 13, 2011 at 9:15 am

        Smarg,

        You do realize that the average ChInese manufacturing wage per hour is less that $2.00 an hour. Welfare pays better than that.

      • Larz99 // Jun 13, 2011 at 12:58 pm

        Smarg, Are you just playing devil’s advocate? You cannot seriously be that cold. I don’t know what your life is like, but I hope you’re not as bitter as your posts make you sound.

        • Smargalicious // Jun 14, 2011 at 8:40 am

          Just keepin’ it real, Larz. The union thug wage bubble eventually had to pop, just like the housing bubble. The free market rules.

          • Larz99 // Jun 14, 2011 at 1:20 pm

            Wow, I don’t know what to say. Your logic is unassailable. I will submit my will to the all powerful corporations now. Thanks for explaining it to me.

      • rucb_alum // Jul 21, 2011 at 9:18 am

        Smarg -

        Your analysis is almost exactly backwards. The American worker is being robbed of nearly $28/hr by the non-productive upper percentiles. If average 1968 wages had kept track with the growth in the economy – as your ‘union thug’ claptrap dictates – then the average hourly wage would be $48 per hour.

        Your prejudice against union-workers displays an astounding inability to face facts.

  • ZigZag // Jun 13, 2011 at 1:44 am

    Seems like a good couple of questions for Mr. Frum as well.

  • mickster99 // Jun 13, 2011 at 2:43 am

    So Pawlenty’s solution is to of course eliminate as much as possible taxes on rich people. There. That ought to fix the problem. And fire up the job creating machine just like we had with Reagan and Bush II.

    The Delusional Force is strong for Pawlenty.
    Fools doing the fools dance again.
    We are all in very serious difficulty when a boozo like Pawlenty gets traction for what is basically some pretty insane and off the wall proposals. Or is just be brave and courageous?

  • truffleman2340 // Jun 13, 2011 at 5:07 am

    workers’ pay has gone down while ceo pay has gone up. since our current sluggish economic recovery is in part caused by a lack of demand, it would seem that a reversal of this would be more beneficial than concentrating wealth at the top. it would also help us to pay down our debts.

  • tommybones // Jun 13, 2011 at 8:00 am

    The American Dream is dead. Long live the Banana Republic!

  • tommybones // Jun 13, 2011 at 8:01 am

    Does Frum not realize this is due to the economic principles he’s long championed?

  • Mark Thomson // Jun 13, 2011 at 8:04 am

    You missed what is arguably a more important question – ‘What is the underlying cause”. I don’t know how you would answer the other two questions sensibly without first knowing this.

    • WaltFrench // Aug 15, 2011 at 1:31 pm

      Here’s one attempt: the economics say marginal output from labor must have collapsed, even as workers have become better educated over the years, while capital, now over-supplied as indicated by capacity utilization and lack of investing shows, now produces more.

      Somehow, I don’t think that labor has gotten much worse than it was when union membership rates were a couple of times as high. The “thugs” story doesn’t wash. OTOH, both facts neatly comport with the facts observed by Mr. Buffet in today’s NYT: capitalists get to keep so much more of their income that our society has tilted strongly to favoring capital.

      Imagine you have a choice between a down payment on an apartment building or a few years at Harvard Med. Choose the first, and your tax rates can be low, maybe zero. Choose the latter, and you pay a higher fraction of your income than the money guys. Is this even hard?

  • nhthinker // Jun 13, 2011 at 8:11 am

    In the 1950s, Americans were known as frugal productive savers that could out compete any labor resource in the world. The Democrats changed focus to social justice and paying off union bosses and ignored that American labor could no longer be characterized as frugal productive savers.
    Obama focused on paying off political allies in state and local government jobs and union jobs- and the average American also sees payoffs to Wall Street and foreign bankers and decides that the federal government is mostly misused and must be smaller. Larger government is clearly not the answer.

  • NRA Liberal // Jun 13, 2011 at 8:25 am

    Shorter Teapublicans: “No, it’s not a problem that wages are flat, you union thugs got what was coming to you and you non-union thugs never deserved to make more than a Chinese laborer anyhow”.

  • ottovbvs // Jun 13, 2011 at 8:41 am

    This chart just summarises what has been common knowledge for years. The real incomes of the vast majority of Americans has been declining for thirty years apart from a brief uptick during the Clinton presidency. The commencement of the downward trend clearly commenced with the ascendency of supply side economic policies at the start of the Reagan presidency. The data makes all this blindingly clear so this requires the usual brain dead suspects to start assigning the blame to union thugs (despite the fact union movement was in the ascendant until the 80’s), lack of frugality amongst American workers, and if all else fails “It’s a good thing American jobs are being exported to China, American workers deserve it and they’d better get used to it.” This is so puerile the only response it deserves is to point out that there are actually Republicans who are crazy enough to hold such views. Fortunately Frum isn’t one of them and he’s posing what are perfectly valid questions. And pace Mark Thompson anyone giving a response to these questions would obviously lay out the underlying causes which I’d say are fairly well known. What the chart exposes is the totally fraudulent basis of supply side solutions in our post industrial society where 70% of GDP is based on consumer spending. In this economic environment how can economic expansion occur when 80-90% of the country’s citizens are being progressively impoverished. It don’t compute.

  • Rob_654 // Jun 13, 2011 at 8:47 am

    Far too many Americans have bought into the rhetoric that we are better than the rest of the world, that we worker harder, are smarter, that our version of capitalism is superior and would grant us a higher standard of living.

    American students are for the most part not even competitive in math, science, etc… and those without the proper education and skills are simply going to be crushed and will live a lower lifestyle going forward.

    Other than telling the Americans the truth that just being an “American” counts for very little for your economic future and that for most Americans the difference between succeeding and falling behind is education (and the correct education) there isn’t much to be said.

    The problem for Republicans is that for many of them this goes against a lot of what they believe and practice – many of them don’t trust science, they disagree with higher education, etc… for those people, well there are few options and most of them will require a lot of luck along with whatever hard work they are willing to do.

  • jg bennet // Jun 13, 2011 at 9:03 am

    start listening to heterodox economists and tariff to inspire companies to bring the jobs back home…..

    smarg you fit the neoliberal profile to a tee with your pay comment and the neoliberals are the ones who got us in this mess.

    The main points of neo-liberalism include:

    THE RULE OF THE MARKET. Liberating “free” enterprise or private enterprise from any bonds imposed by the government (the state) no matter how much social damage this causes. Greater openness to international trade and investment, as in NAFTA. Reduce wages by de-unionizing workers and eliminating workers’ rights that had been won over many years of struggle. No more price controls. All in all, total freedom of movement for capital, goods and services. To convince us this is good for us, they say “an unregulated market is the best way to increase economic growth, which will ultimately benefit everyone.” It’s like Reagan’s “supply-side” and “trickle-down” economics — but somehow the wealth didn’t trickle down very much.

    CUTTING PUBLIC EXPENDITURE FOR SOCIAL SERVICES like education and health care. REDUCING THE SAFETY-NET FOR THE POOR, and even maintenance of roads, bridges, water supply — again in the name of reducing government’s role. Of course, they don’t oppose government subsidies and tax benefits for business.

    DEREGULATION. Reduce government regulation of everything that could diminish profits, including protecting the environment and safety on the job.

    PRIVATIZATION. Sell state-owned enterprises, goods and services to private investors. This includes banks, key industries, railroads, toll highways, electricity, schools, hospitals and even fresh water. Although usually done in the name of greater efficiency, which is often needed, privatization has mainly had the effect of concentrating wealth even more in a few hands and making the public pay even more for its needs.

    ELIMINATING THE CONCEPT OF “THE PUBLIC GOOD” or “COMMUNITY” and replacing it with “individual responsibility.” Pressuring the poorest people in a society to find solutions to their lack of health care, education and social security all by themselves — then blaming them, if they fail, as “lazy.”

    SOUNDS LIKE THE GOP TO ME & TOTALLY NEO CONFEDERATE NOT LINCOLN REPUBLICAN.

    When you put consumption over production the wealth of a nation is drained and that is a historical/scientific fact and the US is a perfect example…….

    Between 1860 and 1914, Great Britain, which began the era with an economy twice the size of ours, ended it with an economy not half the size of ours. Britain worshipped at the altar of free trade, while America practiced protectionism from Lincoln to McKinley to Teddy Roosevelt to Taft. Tariffs averaged 40 percent and U.S. growth 4 percent a year for 50 years.

    Protectionism has been behind the rise of every great power in modern history: Great Britain under the Acts of Navigation up to 1850, the America of 1860 to 1914, Germany from 1870 to 1914, Japan from 1950 to 1990 and China, which has grown at 9 percent a year for a decade. As China demonstrates, it is a mistake to assume free trade, or even democracy, is indispensable to growth…..

    It is distinctly clear that our dominate economic policies are destroying our economy but neoliberals do not want to let go of their religion…..

  • SteveThompson // Jun 13, 2011 at 9:16 am

    In the United States, the difference between the salaries of CEOs and their employees is becoming increasingly disparate. American CEOs on average took home 263 times the salary of their average worker. To add insult to injury, CEOs that punted more of their workers took home 42 percent more than their counterparts who laid off fewer workers.

    Here is an article showing the massive chasm that is growing between the haves and have-nots of the corporate world:



    http://viableopposition.blogspot.com/2010/09/ceos-more-you-cut-more-you-get-paid.html

  • vishnu // Jun 13, 2011 at 9:43 am

    earth to David: to the Republicans and assorted right-wingers this has never been a problem.. if they ever get asked about this, they would simply respond the answer is giving more tax cuts to the rich… the Reps have no solution to any economic problems — ever, except always just giving more money to rich folks, and that’s it….

    the only way to start seriously tackling problems of income inequality in this country — which are worse than any in other modern democracy, and have now even reached third-world proportions — is to vote Republicans out of office….

  • jg bennet // Jun 13, 2011 at 9:57 am

    vishu

    the dems are just as bought off as the GOP and are as big a part of this debacle as the GOP,the GOP is just more blatant in their neoliberalness.

    what we really need is a lincoln republican to run on an independent ticket and divide and conquer both parties. i think america is ready for a non party/non politician in the white house. both parties follow the neoliberal creed and that creed is what needs to be voted out of office.

  • baw1064 // Jun 13, 2011 at 10:08 am

    I suspect the Republican candidates’ answer to David’s questions will be the following:

    “Don’t worry about this graph, the gay communist immigrants are coming to take your guns!”

  • jg bennet // Jun 13, 2011 at 10:16 am

    BELOW IS THE IDEOLOGY OF BOTH OF OUR POLITICAL PARTIES…..

    According to his Iron Law of Wages, wages could never rise beyond subsistence levels. Ricardo explained profits as a return on capital, which itself was the product of labour.

    The Iron Law of Wages, is a proposed law of economics that asserts that real wages always tend, in the long run, toward the minimum wage necessary to sustain the life of the worker. The theory was first named by Ferdinand Lassalle in the mid-nineteenth century. Karl Marx and Friedrich Engels attribute the doctrine to Lassalle (notably in Critique of the Gotha Programme (1875), Marx), crediting the idea to Thomas Malthus in his work, An Essay on the Principle of Population, and the terminology to Goethe’s “great, eternal iron laws” in Das Göttliche.

    According to Lassalle, wages cannot fall below subsistence level because without subsistence, laborers will be unable to work. However, competition among laborers for employment will drive wages down to this minimal level. This follows from Malthus’ demographic theory, according to which population increases when wages are above the “subsistence wage” and falls when wages are below subsistence. Assuming the demand for labor to be a given monotonically decreasing function of the real wage rate, the theory then predicted that, in the long-run equilibrium of the system, labor supply (i.e. population) will be equated to the numbers demanded at the subsistence wage. The justification for this was that when wages are higher, the supply of labor will increase relative to demand, creating an excess supply and thus depressing market real wages; when wages are lower, labor supply will fall, increasing market real wages. This would create a dynamic convergence towards a subsistence-wage equilibrium with constant population.

    Classical liberals (MODERN DAY NEOLIBERALS) rejected Adam Smith’s belief that the “invisible hand” would lead to general benefits and ****embraced Thomas Malthus’ view that population expansion would prevent any general benefit and David Ricardo’s view of the inevitability of class conflict.*****

    Laissez-faire was seen as the only possible economic approach, and any government intervention was seen as useless.

    THE BAD GUYS WON & DECLINING WAGES IS THE PROOF

  • Deep South Populist // Jun 13, 2011 at 10:24 am

    I see a downward slope throughout most of the Clinton years and Obama’s term as well — the Obama downward slope looks like an ice cliff.

    I hope whoever plans to check in with the standard response now (it’s not Obama’s fault; Obama is dealing with fallout from the Bush economy) indicates the point at which Obama will become responsible for this economy. At the start of his second term? At the midpoint of his second term? Never? For most Obama partisans the answer will no doubt be never.

  • LauraNo // Jun 13, 2011 at 10:27 am

    Look on the chart where Reagan came in and then again where Bush comes in.

    • Deep South Populist // Jun 13, 2011 at 10:35 am

      You will notice I didn’t deny it. But let’s be fair. Clinton did not reverse the trend. Neither has Obama.

      • indy // Jun 13, 2011 at 11:29 am

        Actually, I think you are seeing what you want to see. Here is the data from the numbers closest to each president’s term. The only positive one is Clinton’s. I’ll leave it to you and your conscious to decide if it is fair to compare Obama’s partial term to the rest.

        Reagan January 20, 1981 to January 20, 1989

        1981-04-01 107.421
        1989-01-01 105.254

        NET CHANGE = -2.167

        Bush Sr. January 20, 1989 to January 20, 1993

        1989-04-01 103.993
        1993-01-01 103.865

        NET CHANGE = -0.128

        Clinton January 20, 1993 to January 20, 2001

        1993-04-01 104.265
        2001-01-01 107.656

        NET CHANGE = +3.391

        Bush Jr. January 20, 2001 to January 20, 2009

        2001-04-01 105.427
        2009-01-01 98.299

        NET CHANGE = -7.128

        Obama January 20, 2009 – present
        2009-04-01 98.661
        2011-01-01 94.897

        NET CHANGE = -3.764

      • ottovbvs // Jun 13, 2011 at 3:05 pm

        DSP: Can you read charts I wonder? Clinton did reverse the trend temporarily but then it reappeared in the early years of the Bush presidency.

  • shediac // Jun 13, 2011 at 11:10 am

    A simple answer; WalMart! Am I the only person who remembers the original Walmart stores with the giant American flag? Remember the ‘Made In America’ signs on every rack in the Walmart store? What happened? Blame the unions for getting Americans fair wages? Blame the politicians for lying about free trade and the reasons for free trade? Who pushed for free trade? Hey what the heck, the rich and super rich are happy!

  • LauraNo // Jun 13, 2011 at 11:14 am

    I agree, Clinton was not much better, he supported ‘free trade’ and Obama does not look to be in any hurry to try to address all the problems we have relating to runaway banks and corps. I am very discouraged these days and I am one who believes our best days are way behind us and there is no hope in heck we will ever turn this boat around.

    • rucb_alum // Jul 21, 2011 at 9:21 am

      You are recalling the highlights and losing the details…Clinton supported NAFTA and MFN (most favored nation) for China but the GOP stripped out the employee parity and environmental regulation portions of the bill knowing full well that WITHOUT those protections, we would lose our manufacturing base.

      Now who’s to blame?

  • nickthap // Jun 13, 2011 at 11:47 am

    It’s called “neo-liberal” economic policies, and every president since Reagan has espoused it. Larry Summers and Bob Rubin are major neo-liberals, as is Greg Mankiw, Alan Greenspan, the IMF, etc. Basically, the entire “establishment” is neo-liberal in terms of economics. NAFTA was the crown-jewel of neo-liberalism. NAFTA was supposed to bring peace and prosperity to Mexico, remember? Did it work? Nope, just INCREASED illegal immigration as US agribusiness flooded Mexico with cheap corn and set the stage for the drug war there. Then all the Maquiladoras packed up and moved to China, the invisible hand guiding owners to the cheapest labor market.

  • valkayec // Jun 13, 2011 at 11:49 am

    Steve Pearlstein, Business Columnist for WaPo, has an editorial today that aligns with this issue. Significantly, he writes that the measurement tools used to gauge economic growth are out of date, thus no longer reflecting the actual US economy.

    “Economists also are discovering how the globalized supply chains of U.S. based-companies have led government statistical agencies to overstate the size and growth of the U.S. economy — and, along with it, the growth in labor productivity, particularly in manufacturing. The implication of this mismeasurement is that the decline in GDP during the recession was greater than originally thought and the growth since has been weaker, which perhaps helps to explain the disappointing jobs picture.

    The source of this mismeasurement is rather technical, having to do with the price estimates for imported parts and material. If the prices of these “intermediate goods” were actually lower than assumed, and the volume higher, as economists now suspect, then the economic value that was added to them by American workers would have been overstated by the official GDP statistics.

    Michael Mandel, an economist at the Progressive Policy Institute, was one of the first to sound the alarm about this statistical mismeasurement. Mandel explains that the increase in overall output and productivity has been real — it’s just that much less of it can be attributed to U.S. workers. Instead, more of it reflects the productivity gains of foreign suppliers or the increased efficiency of manufacturing supply chains — gains that more naturally flow to foreign workers and the company owners and executives who set up and manage the supply chains. That would help to explain the absence of wage gains in the United States.

    “The mismeasurement problem obscures the growing globalization of the U.S. economy,” Mandel writes. More significantly, it suggests that all that off-shoring and outsourcing has generated less benefit to American workers and the American economy than most economists and the business community have claimed.”

    http://www.washingtonpost.com/the-trials-of-measuring-and-managing-in-a-global-economy/2011/06/06/AGZxdbQH_story.html?hpid=z10

  • LFC // Jun 13, 2011 at 12:07 pm

    For years the Republican strategy was to get their people fired up about “God, gays, and guns” while robbing them blind to benefit large donors. It’s really no different today except that they’re also screaming about the deficit that they mainly created.

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