A Solution to Stagnating Wages
Much of the pent up anger across the United States has been caused by the ever tightening vice of rising expenses, and stagnant wages. I will focus on the main culprit of rising expenses, the skyrocketing cost of health care, in a separate blog. My focus here is to examine why wages have stagnated, and to propose a solution.
Over the last several decades, corporations have ceased to view their employees as key components of their value proposition, but rather as an expense to be minimized or eliminated. The PEW Research Center states that real wages, when adjusted for inflation, are flat or dropping when compared to previous decades.
Corporations in every area of our economy are trying to do more with fewer employees. You see this most frequently in the retail setting. The next time you are impatiently waiting for service, while one or two stressed-out employees rush from one end of the store to another, remember this: your wait was caused by an executive in a distant corporate headquarters, who thought they could cut back on payroll without impacting the customer experience.
When Chevron laid off 8,000 people last spring, it made the business news. But there's another type of layoff that economists and the business press rarely discuss. When an employee leaves a company, either from retirement or a job change, the open position is not always filled. The responsibilities are divided among the remaining workers, for no extra pay. Profitable for company executives and shareholders, but bad policy in terms of worker morale and customer experience.
American corporations have been doing this for years. It's not just Chevron, either: all the corporations are using the same playbook. This path is unsustainable, and we're coming to the end of the road, if we're not already there.
The recession officially ended six years ago, but the American economy is stuck in second gear. Economists can seem to spark a big spurt of growth, because the middle class, a big engine of the economy, isn't spending money. We're not buying cars, houses, and durable goods like washing machines at the clip we have in decades past. The cause of this is clear - we're not making enough money (and after the last recession, we've been reluctant to run up big debts).
When sales are down, corporations cut back on purchases, and expenses such as payroll. This only exacerbates the problem, as one company's cutback causes another company to miss its sales plan, sparking further cutbacks.
To break this cycle, we need a big player to start paying workers higher wages. I don't mean only raising the minimum wage. Even Bernie Sander's proposed $20 an hour isn't a middle class wage. We need millions of jobs paying $50,000 to $99,999 annually ($24-$48/hr).
There's only one power that can pull this off on a scale that would change the course of the entire economy: The U.S. Government. What Uncle Sam needs to do is embark upon an ambitious set of infrastructure projects. As I have pointed out in a previous blog, there's plenty of work that needs to be done - roads, bridges and pipes. Our infrastructure, much of which was build long decades ago, is crumbling.
To rebuild it all, we'll need engineers and laborers, by the millions. Our government needs to start hiring people, and paying them well. This will put huge pressure on corporations to compete for workers by offering higher pay. If they don't, they'll lose their best people, and their enterprises will be in jeopardy.
Though this solution increases government spending, economists believe that the effect on the National Debt would be minimal. Expand the Middle Class, and all that extra money goes right back into the economy, in the form of purchases of houses, cars and durable goods. This in turn increases tax receipts, which should offset the original expenditures. The strengthened infrastructure should increase the confidence of corporations and consumers alike and spur further economic activity.
This is how we got out of the Great Depression. Economists such as Mohammed El-Erian and Lawrence Sommers have proposed doing exactly this.
Higher wages will go a long way to helping assuage the frustration and anger in the American electorate, but it's not the full solution. We will also need to control costs, especially, the ever rising cost of Health Care. [Next blog!]
Over the last several decades, corporations have ceased to view their employees as key components of their value proposition, but rather as an expense to be minimized or eliminated. The PEW Research Center states that real wages, when adjusted for inflation, are flat or dropping when compared to previous decades.
Corporations in every area of our economy are trying to do more with fewer employees. You see this most frequently in the retail setting. The next time you are impatiently waiting for service, while one or two stressed-out employees rush from one end of the store to another, remember this: your wait was caused by an executive in a distant corporate headquarters, who thought they could cut back on payroll without impacting the customer experience.
When Chevron laid off 8,000 people last spring, it made the business news. But there's another type of layoff that economists and the business press rarely discuss. When an employee leaves a company, either from retirement or a job change, the open position is not always filled. The responsibilities are divided among the remaining workers, for no extra pay. Profitable for company executives and shareholders, but bad policy in terms of worker morale and customer experience.
American corporations have been doing this for years. It's not just Chevron, either: all the corporations are using the same playbook. This path is unsustainable, and we're coming to the end of the road, if we're not already there.
The recession officially ended six years ago, but the American economy is stuck in second gear. Economists can seem to spark a big spurt of growth, because the middle class, a big engine of the economy, isn't spending money. We're not buying cars, houses, and durable goods like washing machines at the clip we have in decades past. The cause of this is clear - we're not making enough money (and after the last recession, we've been reluctant to run up big debts).
When sales are down, corporations cut back on purchases, and expenses such as payroll. This only exacerbates the problem, as one company's cutback causes another company to miss its sales plan, sparking further cutbacks.
To break this cycle, we need a big player to start paying workers higher wages. I don't mean only raising the minimum wage. Even Bernie Sander's proposed $20 an hour isn't a middle class wage. We need millions of jobs paying $50,000 to $99,999 annually ($24-$48/hr).
There's only one power that can pull this off on a scale that would change the course of the entire economy: The U.S. Government. What Uncle Sam needs to do is embark upon an ambitious set of infrastructure projects. As I have pointed out in a previous blog, there's plenty of work that needs to be done - roads, bridges and pipes. Our infrastructure, much of which was build long decades ago, is crumbling.
To rebuild it all, we'll need engineers and laborers, by the millions. Our government needs to start hiring people, and paying them well. This will put huge pressure on corporations to compete for workers by offering higher pay. If they don't, they'll lose their best people, and their enterprises will be in jeopardy.
Though this solution increases government spending, economists believe that the effect on the National Debt would be minimal. Expand the Middle Class, and all that extra money goes right back into the economy, in the form of purchases of houses, cars and durable goods. This in turn increases tax receipts, which should offset the original expenditures. The strengthened infrastructure should increase the confidence of corporations and consumers alike and spur further economic activity.
This is how we got out of the Great Depression. Economists such as Mohammed El-Erian and Lawrence Sommers have proposed doing exactly this.
Higher wages will go a long way to helping assuage the frustration and anger in the American electorate, but it's not the full solution. We will also need to control costs, especially, the ever rising cost of Health Care. [Next blog!]
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