Rising prices have erased U.S. workers’ meager wage gains, the latest sign strong economic growth has not translated into greater prosperity for the middle class and working class.
Cost of living was up 2.9 percent from July 2017 to July 2018, the Labor Department reported Friday, an inflation rate that outstripped a 2.7 percent increase in wages over the same period. The average U.S. “real wage,” a federal measure of pay that takes inflation into account, fell to $10.76 an hour last month, 2 cents down from where it was a year ago.
The lack of raises have befuddled economists and policymakers, who hoped that after job openings hit record highs and the unemployment rate dipped to the lowest level in decades, employers would give beefy raises to attract and retain employees. But so far, gains have been slight, and small recent increases are now being eclipsed by rising prices.
Inflation hit a six-year high this summer, driven in part by a jump in energy costs. The price of a gallon of gas has increased 50 cents in the past year, up to a national average of $2.87, according to AAA. Some analysts expect the climb in energy prices to halt soon, which should bring the overall inflation rate down and possibly lift real wages slightly.
Consumers are also paying more for housing, health care and car insurance, the federal government reported Friday. Additional price hikes could be coming as President Trump’s new tariffs boost prices of cheap imported products U.S. consumers rely on. And many economists warn that growth might have peaked for this expansion.
From today’s New York Times “Opinion” Section by Paul Krugman:
As I wrote the other day, Alexandria Ocasio-Cortez may call herself a socialist and represent the left wing of the Democratic party, but her policy ideas are pretty reasonable. In fact, Medicare for All is totally reasonable; any arguments against it are essentially political rather than economic.
A federal jobs guarantee is more problematic, and a number of progressive economists with significant platforms have argued against it: Josh Bivens, Dean Baker, Larry Summers. (Yes, Larry Summers: whatever you think of his role in the Clinton and Obama administrations, he’s a daring, unconventional thinker when not in office, with a strongly progressive lean.) And I myself don’t think it’s the best way to deal with the problem of low pay and inadequate employment; like Bivens and his colleagues at EPI, I’d go for a more targeted set of policies.
But I’m fine with candidates like AOC (can we start abbreviating?) proposing the jobs guarantee, for a couple of reasons. One is that realistically, a blanket jobs guarantee is unlikely to happen, so proposing one is more about highlighting the very real problems of wages and employment than about the specifics of a solution. Beyond that, some of the critiques are, I think, off base.
Here’s the way some of the critiques seem to run: a large share of the U.S. work force – Baker says 25 percent, but it looks like around a third to me – makes less than $15 an hour. So offering these workers a higher wage would bring a huge rush into public employment, implying a very expensive program.
What’s wrong with this argument? The key point is that all those sub-$15 workers aren’t just sitting around collecting paychecks: they’re producing goods and (mostly) services that the public wants. The public will still want those services even if the government guarantees alternative employment, so the firms providing those services won’t go away; they’ll just have to raise wages enough to hold on to their employees, who would now have an alternative.
Now, that doesn’t mean zero job loss. Employers might replace some workers with machines; they would have to raise prices, meaning that they would sell less; so private employment might go down.
But all this is true about increases in the minimum wage, too. And we have a lot of evidence on what minimum wage increases do, because we get a natural experiment every time a state raises its minimum wage but neighboring states don’t. What this evidence shows is that minimum wage hikes have very little effect on employment.
So if we think of a job guarantee as a minimum wage hike backstopped by a public option for employment, we should not expect a mass migration of workers from private to public jobs.
For Anthony Nighswander, rock-bottom unemployment is both a headache and an opportunity. For businesses and workers, it could be the key to reversing one of the country’s most vexing economic problems: slow productivity growth.
Mr. Nighswander is president of APT Manufacturing Solutions, which builds and installs robotic equipment to help other manufacturers automate their assembly lines. Lately, business has been booming: With the unemployment rate now below 4 percent, he says he gets calls every day from companies looking for robots to help ease their labor crunch.
The problem is that Mr. Nighswander faces a hiring challenge in his own business, especially because, in this town of fewer than 4,000 people near the Indiana border, the pool of skilled workers is shallow. But rather than turn to robots himself, he has adopted a lower-tech solution: training. APT has begun offering apprenticeships, covering the cost of college for its workers, and three years ago it started teaching manufacturing skills to high school students.
“I never thought that I would be training high school students in our facilities,” Mr. Nighswander said. “What I knew was that I was in survival mode. I knew the orders for robots and for automation were coming in faster than I could get the jobs out.”
That kind of urgency could prove to be a powerful economic force. The investments in training and automation by Mr. Nighswander and his customers should, over time, make their companies more productive. Multiplied across thousands of companies, those decisions could have benefits for companies and workers that endure even after today’s hot economy inevitably cools.
Productivity — how much value the economy generates in an average hour of work — gets less public attention than more intuitive economic concepts such as employment and wages, but it may be even more fundamental.
Rising productivity — whether through better technology, more educated workers or smarter business strategies — is why people’s economic fortunes, on average, improve over time. When productivity growth is strong, companies can afford to pay workers more without eating into their own profit margins, letting a rising tide lift all boats.
Since the end of the Great Recession, however — and, to a lesser extent, even during the stronger economic times that preceded it — productivity growth has been confoundingly weak, forcing business owners and workers to compete over a relatively meager sliver of economic growth. There have been peaks and valleys, but not since the dot-com boom of the late 1990s and early 2000s has the American economy consistently delivered productivity growth above 2 percent a year.
Now some economists think a rebound could be on the way. For most of the recovery, wage growth has been anemic, suggesting companies faced relatively little pressure to invest in automation or to find other ways to squeeze more production out of workers. But as the labor market tightens, companies’ incentives could be changing.
Anyone with a cellphone should have paid attention to the big merger news on April 29: T-Mobile and Sprint announced their intention to tie the knot after years of speculation. If it goes through, it will leave the country with just three major wireless carriers instead of four.
Less noticed, on the same day, about a dozen other corporate marriages were announced worldwide, worth a combined $120 billion. So far this year, $1.7 trillion worth of deals have been declared globally, higher than the pre-financial-crisis record set in 2007. This year’s big-dollar mergers in the United States range from Cigna’s purchase of Express Scripts, oil refiner Marathon Petroleum buying rival Andeavor, and Dr Pepper Snapple cozying up to Keurig Green Mountain. That’s in addition to AT&T’s play for Time Warner in 2016, CVS’s offer for Aetna, and Amazon swallowing up Whole Foods.
All this activity means fewer companies, which means less competition. For consumers, that can raise prices if the merged companies face less pressure to keep things cheap. That’s the main test these deals have to pass: whether regulators, including the Justice Department and Federal Trade Commission, think consumers will fare worse.
That narrow focus on consumer prices hides another, potentially more dangerous side effect. A growing body of evidence has found that as mergers thin the ranks of businesses, workers have fewer options when they look for jobs. That reduces their bargaining power and, in turn, is part of why wages have stagnated.
The anxiety and seething anger that followed the disappearance of middle-income jobs in factory towns has helped reshape the American political map and topple longstanding policies on tariffs and immigration.
But globalization and automation aren’t the only forces responsible for the loss of those reliable paychecks. So is the steady erosion of the public sector.
For generations of Americans, working for a state or local government — as a teacher, firefighter, bus driver or nurse — provided a comfortable nook in the middle class. No less than automobile assembly lines and steel plants, the public sector ensured that even workers without a college education could afford a home, a minivan, movie nights and a family vacation.
The 19.5 million workers who remain are finding themselves financially downgraded. Teachers who have been protesting low wages and sparse resources in Oklahoma, West Virginia and Kentucky — and those in Arizona who say they plan to walk out on Thursday — are just one thread in that larger skein.
The private sector has been more welcoming. During 97 consecutive months of job growth, it created 18.6 million positions, a 17 percent increase.
But that impressive streak comes with an asterisk. Many of the jobs created — most in service industries — lack stability and security. They pay little more than the minimum wage and lack predictable hours, insurance, sick days or parental leave.
Thousands of Kentucky teachers filled the streets near the state Capitol in Frankfort on a cold, overcast Monday to rally for education funding.
Teachers and other school employees gathered outside the Kentucky Education Assn. a couple of blocks from the Capitol chanting, “Stop the war on public education” and holding or posting signs that say, “We’ve Had Enough.”
“We’re madder than hornets, and the hornets are swarming today,” said Claudette Green, a retired teacher and principal.
The rally is happening after hundreds of teachers called in sick Friday to protest last-minute changes to their pension system.
Teacher unrest is not just limited to Kentucky. Educators in Oklahoma were gearing up Monday to march on their state capital as well.
Oklahoma teachers are demanding that lawmakers approve more education funding just days after the Legislature did just that.
Some teachers are saying the legislation signed by Gov. Mary Fallin last week was not enough. The measure increases taxes on cigarettes, fuel and oil and gas production to provide teachers with raises of about $6,100, or 15% to 18%.
From inside the control room carved into the rock more than half a mile underground, Mika Persson can see the robots on the march, supposedly coming for his job here at the New Boliden mine.
He’s fine with it.
Sweden’s famously generous social welfare system makes this a place not prone to fretting about automation — or much else, for that matter.
Mr. Persson, 35, sits in front of four computer screens, one displaying the loader he steers as it lifts freshly blasted rock containing silver, zinc and lead. If he were down in the mine shaft operating the loader manually, he would be inhaling dust and exhaust fumes. Instead, he reclines in an office chair while using a joystick to control the machine.
He is cognizant that robots are evolving by the day. Boliden is testing self-driving vehicles to replace truck drivers. But Mr. Persson assumes people will always be needed to keep the machines running. He has faith in the Swedish economic model and its protections against the torment of joblessness.
“I’m not really worried,” he says. “There are so many jobs in this mine that even if this job disappears, they will have another one. The company will take care of us.”
In much of the world, people whose livelihoods depend on paychecks are increasingly anxious about a potential wave of unemployment threatened by automation. As the frightening tale goes, globalization forced people in wealthier lands like North America and Europe to compete directly with cheaper laborers in Asia and Latin America, sowing joblessness. Now, the robots are coming to finish off the humans.
Bethamy Magrow is grateful that the minimum wage in New York City is rising to $13 at the end of next month. Earning the current minimum of $11 an hour at a Times Square fashion retailer and scheduled to work some weeks for only 19 hours, the 25-year-old sales worker realizes she doesn’t quite clear New York’s poverty line.
It would be nice if her schedule didn’t change so much from week to week, she told me, so she could set up her doctors’ appointments in advance. But at least New York bars retailers from changing the schedule from one day to the next. In any case, jobs she has had at Whole Foods and Pokéworks, a restaurant on Union Square, were no better or worse.
Millions of Americans have similar stories to tell. For all the talk about the “end of retail,” it is one of the largest employers in the country, accounting for about one in eight workers in the private sector. For every miner toiling in the United States, there are almost 25 retail workers. Manufacturing, the apple of President Trump’s eye, doesn’t employ nearly as many.
Typically paying full-time employees less than $33,000 a year, well below the midpoint across the economy, retail jobs have become the work of the lower class, the main source of support for Americans left behind by economic change.
This raises a fairly urgent question: If retail work sets the living standard for so many low-income families, why doesn’t it get more attention?
From today’s Los Angeles Times “Business” section by Don Lee:
After a long period of plodding economic growth, significant earnings gains over the past two years have finally enabled the average American household to surpass the peak income level it reached in 1999.
The median household income in the U.S. climbed to $59,039 last year, up 3.2% from 2015 after adjusting for inflation, the Census Bureau reported Tuesday.
That comes on the heels of a 5.2% jump in income in 2015, the highest annual percentage increase on record.
The back-to-back increases brought the median income — in which half of households earn more and half less — above the previous peak of $58,665 in 1999.
The median household income in California rose 3.4% last year to $66,637, surpassing the earlier high of $65,852 in 2006.
The national measure of poor people in America also improved significantly for the second year in a row: The poverty rate fell last year to 12.7%, from 13.5% in 2015 and 14.8% in 2014.
That translates into a decline of about 6 million people in poverty over the last two years.
The latest poverty rate is comparable to 2007, the year before the Great Recession took hold. But there were still 40.6 million poor people in the nation last year. A household with two adults and two children is considered poor if their total income was less than $24,339.
“We consider 2015 and 2016 to be the turning point on the real median household income front, as employment and wage gains, combined with modest consumer price inflation, have boosted the well-being of many American households,” said Chris G. Christopher Jr., executive director of IHS Markit, an economic research firm.
“Real median household income has finally completed its nine-year slog of digging out of the ditch,” he said.
But the annual Census report was not as glowing beneath the surface, and economists are concerned that budget proposals curtailing things like food stamps could thwart continuing progress.
The impact of Trump’s promised tax reform could also change trends for the poor and middle class.
While the latest data showed solid gains for blacks and Latinos and younger adults, median incomes for full-time, year-round workers, men and women, were essentially flat in 2016, reflecting sluggish wage growth that has persisted into this year.
What’s more, a key measure of income disparity remains at the highest level in at least a half century.
And although the median income for urban dwellers jumped 5.4% last year to $61,521, households in rural areas saw their earnings basically stagnate at less than $46,000.
From the New York Times “Opinion” Section, August 16, 2017 by Richard Trumka:
On Tuesday, President Trump stood in the lobby of his tower on Fifth Avenue in Manhattan and again made excuses for bigotry and terrorism, effectively repudiating the remarks his staff wrote a day earlier in response to the white supremacist violence in Charlottesville, Va. I stood in that same lobby in January, fresh off a meeting with the new president-elect. Although I had endorsed Hillary Clinton for president, I was hopeful we could work together to bring some of his pro-worker campaign promises to fruition.
Unfortunately, with each passing day, it has become clear that President Trump has no intention of following through on his commitments to working people. More worrisome, his actions and rhetoric threaten to leave America worse off and more divided. It is for these reasons that I resigned yesterday from the president’s manufacturing council, which the president disbanded today after a string of resignations.
To be clear, the council never lived up to its potential for delivering policies that lift up working families. In fact, we were never called to a single official meeting, even though it comprised some of the world’s top business and labor leaders. The A.F.L.-C.I.O. joined to bring the voices of working people to the table and advocate the manufacturing initiatives our country desperately needs. But the only thing the council ever manufactured was letterhead. In the end, it was just another broken promise.
During my January meeting with President Trump, we identified a few important areas where compromise seemed possible. On manufacturing, infrastructure and especially trade, we were generally in agreement. Mr. Trump spoke of $1 trillion to rebuild our schools, roads and bridges. He challenged companies to keep jobs in the United States. He promoted “Buy America.” He promised to renegotiate the North American Free Trade Agreement.
Here’s the thing: Working men and women have been promised the moon by politicians. Year after year. Campaign after campaign. Republican and Democrat. Too often, those promises have ended up being hollow; election year sound bites are often discarded as quickly as they are made. I told President Trump that this time must be different. I made clear that we would judge his administration on its actions.
Nearly seven months in, the facts speak for themselves.
President Trump’s $1 trillion infrastructure bill is nowhere to be found. And according to an analysis from the University of Pennsylvania, even if Mr. Trump did bring such a plan forward, his own budget proposal would wipe it out, leading to a net loss of $55 billion for highways, water facilities and public transit. President Trump has also remained silent on the future of the Davis-Bacon Act of 1931, which requires contractors on federally assisted construction projects to pay their employees at rates prevailing in the communities where they perform the work.
What about Nafta? First, President Trump promised that the United States would withdraw. Then his administration sent a letter to Congress indicating the treaty needed only minor tweaks. Now renegotiation is underway with no clear principles for reform or negotiating goals in sight. Meanwhile, Nafta remains firmly in place.
Although President Trump has promised to protect the social safety net, his budget would slash $1.5 trillion from Medicaid, $59 billion from Medicare and up to $64 billion from Social Security over 10 years. It would strip funding for workplace safety research by 40 percent, even though about 150 workers die each day from hazardous working conditions. And it would force the people who make our government work to endure a 6 percent pay cut.
President Trump championed the Republican plan to gut health care and raise taxes on working people to line the pockets of the rich. And his executive orders that deport aspiring Americans and impose a religious litmus test for refugees are both morally bankrupt and bad economic policy.
Finally, rather than “draining the swamp,” President Trump has filled his cabinet with the authors and beneficiaries of our broken economic rules. He has elevated an anti-worker judge to the Supreme Court and appointed union-busting lawyers to the National Labor Relations Board.
His response to the white supremacist violence in Charlottesville was the last straw. We in the labor community refuse to normalize bigotry and hatred. And we cannot in good conscience extend a hand of cooperation to those who condone it.
In some ways, President Trump presented himself as a different kind of politician, someone who could cut through the gridlock in Washington and win a better deal for American workers. But his record is a combination of broken promises, outright attacks and dangerous, divisive rhetoric. That’s why we opposed him in the campaign. And that’s why he is losing the support of our members each and every day.