For the second month in a row, annual inflation fully offset workers’ average hourly wage growth
For a second month in a row, annual inflation fully offset average hourly wage growth in June, leaving workers’ real hourly earnings flat from a year earlier despite falling unemployment and a generally strong economy. Production and nonsupervisory employees, a category which includes blue-collar workers, saw their real average hourly wages fall 0.2% in June from a year earlier after a similar slip in May.
.. While workers made up for higher prices by working slightly more hours per week, the stagnation of Americans’ purchasing power underscores questions about the extent to which workers are benefiting from an economy that by many other measures is booming.
.. “Wage growth remains surprisingly weak,” said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a note to clients earlier this week. “The remarkable ability of firms to lure more workers back into the labor force and get stronger productivity gains from them without raising wages is a clear positive for profits.”
.. in June, Fed “participants generally agreed that the economic expansion was progressing roughly as anticipated, with real economic activity expanding at a solid rate, labor market conditions continuing to strengthen, and inflation near the Committee’s objective,” according to meeting minutes released last week.
Economists said Thursday’s data generally supported their view that inflationary pressures are gradually picking up.
.. The impact of those tariffs, should they take effect, won’t be negligible, economists say.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the goods subject to the proposed tariffs account for almost 6% of the core CPI, meaning that a 10% levy would lift the index by up to 0.6 percentage point.
.. “The Fed can’t stand back and ignore a hit of this size, given the tightness of the labor market,” Mr. Shepherdson said in a note to clients dated Thursday. “People will seek to be compensated for the squeeze on their real incomes as a result of higher prices, and their chance of being able to force employers to pay up is better now than at any time since the crash.”
Trump’s Potemkin Economy
According to legend, Grigory Potemkin, one of Catherine the Great’s ministers (and her lover), created a false impression of prosperity when the empress toured Ukraine.
.. the legend has become a byword for the general idea of prettifying reality to please a tyrannical ruler.
.. But Trump’s actual policy initiatives aren’t doing so well. His tax cut isn’t producing the promised surge in business investment, let alone the promised wage gains; all it has really done is lead to a lot of stock buybacks. Reflecting this reality, the tax cut is becoming less popular over time.
.. the trade war that was supposed to be “good, and easy to win” isn’t generating the kinds of headlines Trump wanted... Instead, we’re hearing about production shifting overseas to escape both U.S. tariffs on imported inputs and foreign retaliation against U.S. products... making stuff up is actually standard operating procedure for these guys... Trade policy itself is being driven by claims about the massive tariffs U.S. products face from, say, the European Union — tariffs that, like the immigrant crime wave, don’t actually exist... he declared that the head of U.S. Steel called him to say that the company was opening six new plants. It isn’t, and as far as we can tell the phone call never happened... the Council of Economic Advisers did an internal report concluding that Trump trade policy will cost jobs, not create them; Kevin Hassett, the chairman, pressed on these reports, said that he could neither confirm nor deny them; in other words, they’re true... Hassett is declaring that last year’s corporate tax cut has led to a “massive amount of activity coming home” — which is just false. Some companies are rearranging their accounting, producing what looks on paper like money coming back to the U.S., but this has no real effect on investment or employment... declaration by Larry Kudlow, the administration’s top economic official, that the budget deficit is “coming down rapidly” as “those revenues come rolling in.”.. reports that Trump wants to withdraw from the World Trade Organization... The best hope for breaking the cycle of retaliation would be for Trump to realize that the trade war is going badly, take a deep breath, and step back from the brink... But who will tell him how things are really going?.. Trump will dismiss reports of problems as fake news. Reality will take a long time to break through, if it ever does. And by then the world trading system may be broken beyond repair.
Why you can’t fix retirement without fixing wages
Millennials needn’t worry about retirement, Alicia Munnell, 75, writes, as long as they “are willing and able to work longer than their parents and grandparents did.”
It may not be surprising that younger Americans, who will largely be responsible for cleaning up the financial wreckage the boomers are leaving behind, are not particularly enthusiastic at the prospectof working longer and harder for the same quality of life enjoyed by previous generations.
.. the proximate causes of millennials’ financial difficulties, such as the Great Recession and the dot-com bubble: “Millennials entered the labor market during tough times.
.. The “good news,” as she calls it, is that retirement is a long way off and that simply by working into their 70s, millennials will be able to make up a lot of lost ground.
.. Between 1989 and 2016, the real median income of houses headed by people younger than 35 increased by just 4 percent. That’s just about enough to keep pace with overall inflation.
.. The problem is, however, that many prices have been rising much more rapidly than the pace of inflation. Prices are rising fastest for the things that are absolute necessities: Health care. Food. Housing. Education. Things you literally need to survive. As a result, households have to take on more debt to make ends meet.
.. Overall compensation has been largely stagnant since the 1970s, even as productivity has increased. Median household debt has roughly doubled since 1989.
.. By asking millennials to work to age 70 you’re treating the symptom, not the underlying disease.
.. Selling American elites, who tend to be older and wealthier, on the notion that the young just need to work harder is easy. But the idea that workers urgently deserve an across-the-board pay raise — a raise that would come, often, from higher payments from those same older and wealthier people — is a much tougher sell.
The Class Struggle According to Donald Trump
the fact that a worker’s wealth and well-being is much more dependent upon her employer than the employer is on a given worker tilts things in the employer’s favor.
.. Two trends demonstrate the decline of labor and the ascent of business. Since 1979, after-tax corporate profits as a share of gross domestic product have grown by 22.8 percent, while the share of nonfarm business sector income going to labor has dropped by 10.3 percent.
The decline in worker bargaining power in the United States is the cumulative effect of numerous small and large changes over recent decades reaching into almost every area of law and policy. This combines with a decline in the enforcement of existing laws that could protect workers’ bargaining power — laws protecting unions, laws against wage theft, nondiscrimination laws, and more.
.. Among these changes is the requirement that employees sign what are known as “noncompete” and “no-raid” agreements, both of which restrict workers’ ability to extract pay hikes by threatening to take similar jobs at competing companies.
.. “less than half of workers who have non-competes also report possessing trade secrets.”
When entry-level workers at fast food restaurants are asked to sign two-year non-competes, it becomes less plausible that trade secrets are always the primary motivation for such agreements.
.. The treasury report estimated that 30 million American workers have signed noncompete agreements.
.. 94 percent of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.
The growing emphasis on “shareholder value” has provided additional justification for all of these anti-worker developments.
.. “the shareholder value movement starting in the late 1980s and now institutionalized through industry analysts” was crucially important in the devaluation of employees:
.. Accounting in business is mainly about costs. Finance people hate fixed costs because of the challenges they raise to share price valuation when there is uncertainty, and the biggest fixed costs are labor. Simply moving the same labor costs from employees to outside staffing companies moves it from one part of the accounting ledger to another and makes analysts happier.
This mentality, in turn, encourages “the use of temps and contractors” to fill high-wage jobs because “that way the employer doesn’t have to raise wages for all their employees.”
.. Companies could outsource work to areas with cheaper labor and less of a union presence. This both weakened the union and ramped up competitive pressure on the companies that were unionized. The result was fewer unions.
.. In 2017, 6.5 percent of the private sector work force was unionized, down from 35 percent in 1955.
.. The contemporary weakness of organized labor and the threatened status of employees has roots in the breakdown in the 1970s of the postwar capital-labor accord — what A.H. Raskin, the legendary labor reporter for The Times, called a “live-and-let-live relationship” that held sway for 30 years.
.. First, they would alter antitrust enforcement to require consideration of the likely effect of mergers on concentration in the labor market, in order to prevent “too high a risk of wage suppression.”
.. Second, Krueger and Posner would support legislation making noncompete agreements “uniformly unenforceable and banned if they govern a worker who earns less than the median wage in her state.”
.. ban no-poaching arrangements altogether:
We propose a per se rule against no-poaching agreements regardless of whether they are used outside or within franchises. In other words, no-poaching agreements would be considered illegal regardless of the circumstances of their use.
.. In the 2016 election, Trump profited from the conviction of rural and working-class voters that they were on a downward trajectory. If anything, Trump appears to be gambling that letting those voters’ lives continue to languish will work to his advantage in 2020.
.. His administration has turned the executive branch, the federal courts and the regulatory agencies into the sworn enemy of workers, organized and unorganized. Trump is indisputably indifferent to the plight of anyone in the bottom half of the income distribution:
- look at his appointments,
- look at his record in office,
- look back at his business career and
- look at the man himself.