Monday, December 29, 2003

Did Someone Say Jobless Recovery?

Since July the average hourly wage increase for the 85 million Americans who work in non-supervisory jobs in offices and factories is a flat 3 cents. Wages are up just 2.1 percent since November 2002 -- the slowest wage growth we've experienced in 40 years. Economists at the Economic Policy Institute have been comparing recoveries of late, looking into the growth in corporate-sector income in each of the nine recoveries the United States has gone through since the end of World War II. In the preceding eight, the share of the corporate income growth going to profits averaged 26 percent, and never exceeded 32 percent. In the current recovery, however, profits come to 46 percent of the corporations' additional income.

Conversely, labor compensation averaged 61 percent of the total income growth in the preceding recoveries, and was never lower than 55 percent. In the Bush recovery, it's just 29 percent of the new income coming in to the corporations.

Someone with an antiquarian vocabulary might rightly note that this is a recovery for capital, not labor; indeed, that it's a recovery for capital at the expense of labor.

But we are none of us antiquarians, so let's just proceed.

There are only a couple of ways to explain how the capacity of U.S. workers to claim their accustomed share of the nation's income has so stunningly collapsed. Outsourcing is certainly a big part of the picture. As Stephen S. Roach, chief economist for Morgan Stanley, has noted, private-sector hiring in the current recovery is roughly 7 million jobs shy of what would have been the norm in previous recoveries, and U.S. corporations, high-tech as well as low-tech, are busily hiring employees from lower-wage nations instead of from our own.

The jobless rate among U.S. software engineers, for instance, has doubled over the past three years. In Bangalore, India, where American companies are on a huge hiring spree for the kind of talent they used to scoop up in Silicon Valley, the starting annual salary for top electrical engineering graduates, says Business Week, is $10,000 -- compared with $80,000 here in the States. Tell that to a software writer in Palo Alto and she's not likely to hit up her boss for a raise.

That software writer certainly doesn't belong to a union, either.

Indeed, the current recovery is not only the first to take place in an economy in which global wage rates are a factor, but the first since before the New Deal to take place in an economy in which the rate of private-sector unionization is in single digits -- just 8.5 percent of the workforce.

In short, what we have here resembles a pre-New Deal recovery more than it does any period of prosperity between the presidencies of the second Roosevelt and the second Bush. The great balancing act of the New Deal -- the fostering of vibrant unions, the legislation of minimum wages and such, in a conscious effort to spread prosperity and boost consumption -- has come undone. (The federal minimum wage has not been raised since 1997.) And the problem with pre-new deal recoveries is that they never created lasting prosperity.



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