A story in today’s New York Times highlights the latest data on wage and productivity growth. See Greenhouse and Leonhardt, Real Wages Fail to Match a Rise in Productivity, New York Times, August 28, 2006 (online at http://www.nytimes.com/2006/08/28/business/28wages.html?_r=1&th&emc=th&oref=slogin)
The story indicates that there has been a 2 percent drop in the median hourly wage for American workers since 2003, after taking into account inflation. At the same time, productivity gains continued, outpacing the rate of wage growth. During the period 2000-2005, productivity increased by 16.6 percent, while the median wage increased only 7.2 percent. At the same time, corporate profits are up, thus suggesting that employers benefited from these productivity gains at a greater level than workers did.
Consistent with the editorial slant of the New York Times, the writers seemed to go out of their way to make this into a news item boding ill for the Republicans in elections this fall. The article makes much of the growing disparity between the high-end workers (i.e., CEOs) and the rank and file, and the possibility of voter discontent running toward incumbents. In fairness, it also notes that wage disparity has been growing over time, and that was not the fault of the current administration.
Wage stagnation is a matter of concern to working Americans. Though it is popular in some circles to lambaste globalization as the cause of downward competitive pressure on wages, as a practical matter little can be done about the trend toward global trade without great economic harm. Goods and services are going to be crossing borders with increased regularity, affecting the competition for those goods and services here and dampening wage growth. According to the article, even those earning over $80K/year are struggling with wage growth (though apparently not the top 1% earners, such as CEOs.)
This disparate result is not a vast conspiracy against the common man. CEOs can benefit from leveraging profits from global cost-cutting and trading opportunities to the extent that their compensation is measured by the output of the enterprise. The average workers, not so much – but they can benefit by consuming cheaper products and services than might otherwise be available. That plasma TV made in China would not be available for the big game without global trade. Unfortunately, one of the products we import a lot of – oil – has taken an increasing share of the earnings of workers these days. To the extent that something can be done about that – like expanding supplies domestically through offshore drilling or exploration in Alaska – the political parties have not been effective at advancing this obvious (albeit partial) solution. However, hand-wringing and blaming continues – which results in even more global warming if you believe political hot air contributes to this phenomenon.
Wage growth can also be affected by immigration policies, which is another area where political wills appear to be lacking for both parties. The supply of lower-skilled workers has been increasing dramatically in domestic markets through unregulated immigration, seriously dampening wage growth. Though many say native Americans won’t do the work that immigrants do, that is not so: they simply won’t do it at these prices. Instead of requiring higher wages from employers, the influx of immigrant labor means that lower wages can continue. Thus, immigration is likely to have a significant impact on the trends identified, but particularly in dampening wage growth.
If the public begins to understand the effects of immigration on domestic wage growth, this issue will resonate with many voters in middle-class America. However, two powerful interests are likely to dampen the enthusiasm of political candidates to address this issue in close contests – and both parties are affected.
On one hand, we have business interests. Whether large or small business is involved, no one wants to take a policy position that will increase their costs and decrease their competitive advantages. Why stop trends that dampen wage growth? This understanding undoubtedly affects what is often a Republican base that candidates cannot afford to alienate.
On the other hand, the substantial size of the immigrant population is something that Democratic candidates cannot ignore, either. They perceive a potential electoral power base coming from the immigrant population, as well as from others in lower economic strata. Common support bases among those who believe in enhancing state support for health care and other public welfare services provide a natural ally for Democratic candidates, which they will not want to alienate. A lack of economic progress actually helps this power base – if its members turn out to vote.
Though labor unions have long been a source of Democratic support, their numbers are generally declining. Sadly, the labor unions may find they have no one speaking their language on this issue, as their candidates will likely make an electoral calculus and follow the votes. For many, this means choosing liberal immigration policies despite the fact that they drive down wages, particularly for those with lower skill levels. Though rhetoric on globalization may seduce some union folks into believing their candidates care about their plight, they must realize that this is just like talking about the weather: everyone talks, but no one does anything about it. The sooner this group recognizes this truth, the sooner they will be asking some tough questions and focusing on this political problem.
It will be interesting to see how this quandary is resolved in this fall’s campaign season. I think we’ll see lots of dancing around the issue, but not much straight talk. And this is not a healthy sign for the future.