EMPLOYEES ARE NOT THE PROBLEM!

So there I am at a conference about problems with the U.S. economy, and the CEO of an enormously large financial institution that manages literally trillions of dollars of assets, someone with an MBA degree and access to the highest levels of government around the world, says the following:  the restructuring of the U.S. automobile industry, through the process of bankruptcy, was painful but necessary.  Now, new U.S. autoworkers will earn abut $14 an hour, even less than in Mexico (his phrase, not mine), which will help the U.S., the #1 exporting country, maintain and strengthen its competitiveness.

Wow!  First of all, the U.S. is not the largest exporter—that distinction used to be held by Germany and is now China's.  I would feel better if people with this level of power actually knew the facts.  But what is, of course, most striking about the comment is the implication that it is "progress" when U.S. employees lose economic ground, as though in order to be competitive in world markets, we need to reduce our wage rates so that they are low.

Note that this very senior and highly-regarded individual did NOT talk about problems in the U.S. economy that came from overpaying CEOs.  It's interesting—when I hear people talk about wage rates, they invariably talk about the rates paid to front line workers, not the wages—which are, as we know, way above the levels paid in other countries with the possible exception of the United Kingdom—paid to senior leaders.

It is simply factually untrue that labor rates equal labor costs, and that labor costs equal country—or company—competitiveness.  As surveys published by the Economist Intelligence Unit and the World Economic Forum, among other sources, consistently show, relatively high-wage (and high social-benefit) countries such as Germany, Denmark, Sweden, Finland, the Netherlands, and Switzerland are invariably listed among the top-ranking economies in the world.  In case you haven't been paying attention in the U.S., among the most successful companies are Apple and Google—neither of which skimp on either pay or other perquisites.  Even in the airline industry, Southwest, which is fully unionized, has long paid the highest wages to its pilots.

Labor rates don't equal labor costs.  If I pay you next to nothing but you don't accomplish anything, my costs are actually high.  Labor costs are a function of two things:  the rate of pay and the individual's productivity.  A highly productive, albeit well-paid individual, can actually result in lower labor costs because of the productivity advantage.  The study of unionized construction workers has demonstrated this effect for decades.

And most importantly, labor costs aren't the key to competitive success.  What drives economic well-being in a knowledge-intensive economy are innovation, creativity, design—in short, great products and services.  The problems of the U.S. auto companies had much more to do with their quality, design, and brand image than it did with what the companies paid.

Ironically, the U.S. has been a comparatively low wage country for years, when one compares our wages to those paid in other advanced industrialized countries.  Our balance of trade deficit has little to nothing to do with our ranking in the wage structure.

I find it depressing, if not worse, that senior leaders in both the private sector and the public sphere think it is progress when wages—and standards of living—are cut.  Employees suffer, but there is scant to nonexistent evidence that either companies or the economy benefit.