In America, wage growth is getting wiped out entirely by inflation

From today’s Washington Post:

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 stagnant pay comes despite accelerating U.S. growth, which has increased in the past year and topped 4 percent in the second quarter of 2018 — the highest rate since mid-2014.

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.

Read the complete article here.

‘Eye-popping’ payouts for CEOs follow Trump’s tax cuts, while wages stagnate

From today’s Politico “Finance and Tax” Series:

Some of the biggest winners from President Donald Trump’s new tax law are corporate executives who have reaped gains as their companies buy back a record amount of stock, a practice that rewards shareholders by boosting the value of existing shares.

A POLITICO review of data disclosed in Securities and Exchange Commission filings shows the executives, who often receive most of their compensation in stock, have been profiting handsomely by selling shares since Trump signed the law on Dec. 22 and slashed corporate tax rates to 21 percent. That trend is likely to increase, as Wall Street analysts expect buyback activity to accelerate in the coming weeks.

“It is going to be a parade of eye-popping numbers,” said Pat McGurn, the head of strategic research and analysis at Institutional Shareholder Services, a shareholder advisory firm.

That could undercut the political messaging value of the tax cuts in the Republican campaign to maintain control of Congress in the midterm elections.

The SEC requires company executives to disclose share purchases or sales within two business days. Companies emphasize that their executives’ share sales are often scheduled at regular intervals well in advance. In Banga’s case, he has routinely sold shares once a year, and always in May, since 2013…

Yet the insider sales feed the narrative that corporate tax cuts enrich executives in the short term while yielding less clear long-term benefits for workers and the broader economy. Critics of insider sales argue that they diminish the value of paying C-suite employees in shares — a practice that’s intended to give them a greater stake in the long-term health of the company — and can even raise questions about the motivation for the buybacks themselves.

Following the tax cuts, roughly 28 percent of companies in the S&P 500 mentioned plans to return some of their tax savings to shareholders, according to Morgan Stanley. Public companies announced more than $600 billion in buybacks in the first half of this year — already toppling the previous annual record.

Year to date, buybacks have doubled from the same period a year ago, Merrill Lynch said in a July 24 report, citing its clients’ trading activity. “Last week we noted that buyback activity [was] poised to accelerate over the next six weeks, and indeed, corporate clients’ buybacks picked up to a two-month high and the 6th-highest level in our data history,” the company said.

Read the complete article here.

 

In parts of America, Department of Labor hasn’t updated “prevailing wage” for taxpayer-funded work in decades

From Bloomberg News Network:

Thanks to a web of loopholes and limits, the federal government has been green-lighting hourly pay of just $7.25 for some construction workers laboring on taxpayer-funded projects, despite decades-old laws that promise them the “prevailing wage.”

Over the past year, the U.S. Department of Labor has formally given approval for contractors to pay $7.25 for specific government-funded projects in six Texas counties, according to letters reviewed by Bloomberg. Those counties are among dozens around the nation where the government-calculated prevailing wage listed for certain work—such as by some carpenters in North Carolina, bulldozer operators in Kansas and cement masons in Nebraska—is just the minimum wage.

That’s in part because, according to publicly available data from the Labor Department’s Wage and Hour Division, the agency is relying on wage survey data in more than 50 jurisdictions that’s from the 1980s or earlier. Experts said that’s a far cry from what Congress intended when, starting with the Depression-era Davis Bacon Act, it passed a series of laws meant to ensure that private companies contracted for government-backed projects pay their workers at least in the vicinity of what others get for the same work in the same geographic area.

In an emailed statement, the Labor Department didn’t address whether the decades-old data is a problem.

“The Wage and Hour Division carefully plans where to survey on an annual basis to ensure that prevailing wage rates reflect the reality of construction pay practices in a locality. The division identifies potential survey areas based on a number of criteria, including where available data on active construction projects in an area reveal changes in local pay practices such that a survey is necessary,” the department said.

Because government contracts are often required to go to the “lowest responsible bidder,” supporters say prevailing wage rules prevent a “race to the bottom” in which exploitative companies who pay workers less outbid safer, higher-quality firms, and in turn drive down industry standards to pocket more taxpayer dollars. Opponents of prevailing wage rules counter that they’re intrusive mandates that waste money, inflating construction costs in order to help unionized firms beat non-union competitors.

In recent years, the opposition—largely Republicans and industry groups—scored a series of wins, successfully pressing state governments in Arkansas, Indiana, Kentucky and West Virginia to repeal their own “little Davis Bacon” rules. By contrast, the federal statutes remain in place, despite the efforts of Representative Steve King, Republican of Iowa, who said last year  that “no one can claim to be a fiscal conservative if they think the federal government needs to inflate the cost of wages.”

Read the complete article here.

Opinion: When Companies Supersize, Paychecks of Workers Shrink

From today’s New York Times:

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.

Read the complete article here.

American households finally earn more than they did in 1999, but poverty and inequality are on the rise

From today’s Los Angeles Times “Business” section by Don Lee:

Income inequality

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.

Read the entire article here.

Germany and the Minimum Wage

From the New York Times Editorial Board:

The federal minimum wage of $7.25 an hour is obviously too low. So is the Democrats’ proposed increase to $10.10 an hour by 2016. If the minimum wage had merely kept pace over time with inflation, average wages or productivity growth, it would be between $11 an hour and $18 an hour today.

It would also be higher if it kept pace with what other advanced economies are prepared to pay.

Last week, the lower house of Parliament in Germany voted to set a nationwide minimum wage of 8.50 euros an hour, about $11.60, effective in 2015. The upper house is expected to approve the measure this week. With the passage of it, Germany, France, Britain and the Netherlands have or soon will have higher minimum wages than the current and proposed minimums in the United States, and only six countries in the European Union will be without a statutory minimum wage: Austria, Cyprus, Denmark, Finland, Italy and Sweden.

The expected German minimum is noteworthy not only for its level. For nearly 70 years, most wages in Germany have been set by agreements that are collectively bargained between unions and employers. In recent decades, however, and particularly following reunification with the former East Germany, the share of workers who are effectively covered by union agreements has fallen. By enacting an adequate minimum wage, the German Parliament is responding constructively to that development, because a solid wage floor ensures that economic growth is broadly shared even by those who fall outside the collectively bargained framework.

In a global economy that has long relied on low wages to lift profits, a relatively high minimum wage in Germany would also reflect a growing consensus there that a high-wage, high-productivity economy is, in fact, an advantage in stabilizing the nation economically and socially.

In Germany, as in the United States, business lobbyists and some economists have warned that a robust minimum wage will lead to job losses and higher prices, but that has not been the historical experience. Rather, higher wages for low-wage workers are generally offset by lower labor turnover, while the boost in consumer spending from higher wages is good for the economy. Boosting consumer demand is especially important in Germany, whose economy is overly reliant on exports.

Germany’s move offers the United States important lessons, if only lawmakers in Washington would learn.

The Economy May Be Improving. Worker Pay Isn’t.

From NYT’s “The Upshot” by Neil Irwin:

The latest economic data out Tuesday morning was generally good. Home building activity remained above the one million a year rate. Consumer prices rose 0.4 percent in May, such that inflation over the last year is now 2.1 percent, about in line with what the Federal Reserve aims for.

But that inflation news carried with it a depressing side note. Now that the Consumer Price Index for May has been published, it is possible to determine inflation-adjusted hourly earnings for the month. And the number is not good.

Average hourly earnings for private sector American workers rose about 49 cents an hour over the last year, to $24.38 in May. But that wasn’t enough to cover inflation over the year, so in real or inflation-adjusted terms, hourly worker pay fell 0.1 percent over the last 12 months. Weekly pay shows the same story, also falling 0.1 percent in the year ended in May.

Pause for just a second to consider that. Five years after the economic recovery began, American workers have gone the last 12 months without any real increase in what they are paid.

Read the entire article here.