From: Mermaid (hidden@lucifer.com)
Date: Mon Oct 27 2003 - 07:35:24 MST
[Blunderov]
<q>
Gains in Wages Expected to Give Economy a Lift
By DAVID LEONHARDT and EDMUND L. ANDREWS
Wage increases for employees at almost all income levels
are giving important and unexpected support to the nation's economy.
http://www.nytimes.com/2003/10/27/business/27WAGE.html?th
Gains in Wages Expected to Give Economy a Lift
By DAVID LEONHARDT and EDMUND L. ANDREWS
Published: October 27, 2003
[Mermaid]I just finished reading your article and after I checked out of hotmail from where I get my early morning spam fix, I saw this on the msn page...
http://moneycentral.msn.com/content/P62365.asp
It is a very interesting article. I am going to paste just some bits and pieces of it. Its a good read, imo.
(begin snip)
Yes, jobs are finally being created, but U.S. workers will find their incomes increasingly pressured by lower wages, higher benefit fees and global competition. That’s good for your boss but could hurt the markets.
[...]
Initial claims for unemployment dropped another 4,000 to 386,000 in the latest report. That’s below the 400,000 level that many economists believe marks the difference between times of growing employment (such as now) and times of growing unemployment (as in much of 2003).
[Mermaid] I suspect that unemployment is higher.
In September, 138 million of us were employed, and 9 million -- or about 6.5% -- were officially unemployed. That unemployed number doesn’t include the 5 million people in the United States who work at part time jobs and say they’d like full time jobs if they could find them.
In September, 57,000 more people received paychecks than the month before. The biggest job loss that month came in manufacturing, where 29,000 people lost their spots on the payroll. Yep, the manufacturing sector continued to lose jobs even as the economy as a whole added jobs.
And the biggest gains in jobs came in business and professional services (66,000 workers added to payrolls in this kind of work), health care and social assistance (15,000), and retail (15,000).
Manufacturing jobs in the United States pay an average of $650 a week or about $34,000 a year, according to outplacement firm Challenger, Gray & Christmas. Retail jobs, in contrast, pay an average of $373 a week, or about $19,000 a year. Even as the recovery starts to pick up speed, the U.S. economy is shedding $34,000-a-year jobs and replacing them with $19,000-a-year jobs.
[Mermaid]This is a *huge* flashing red sign. Over the years, the manufacturing industry has eroded to nothing in the United States. Service sector jobs are cheaper to outsource and primary sector is essentially sufficient for feeding the millions of a very large America. The economy hums here not because of it is producing surplus, but because America is a *large* country. The country generates so many jobs just to feed, clothe and to get the food and goods from one end of the country to the other. This is quite impressive, but its not enough to be globally competitive. USA owes its economic success to its relative youth (and so hasnt experienced the inevitable cycles ..economic or otherwise) and because of the turmoil in the rest of the world(and so the global slump suppressed global economic recovery). But thats over now. Its now time to relook at our assets and liabilities. Manufacturing is out and service sector is limited. America's only hope is technology and research. It has to corner the technology a
nd research market to supply and distribute it to the rest of the world who will work on it. Technology that improves the lot of the rest of the world. America has no choice but to raise the world's lot and help the rest of the world step out of their shitholes. As they become more equal, the competitive edge will disappear. Non zero game at work.
That’s not the only way in which the jobs being created by this recovery are worth less than the jobs being destroyed in the recovery, or less than those that existed before the downturn even started. Workers taking new jobs and workers hanging on to existing jobs are paying more out of their paychecks.
[...]
In the same way, many paychecks are now worth less because of fees that you have to pay that your employer used to cover.
For example, 56% of U.S. employers raised healthcare premiums, deductibles or co-pays in the last year, according to Watson Wyatt Worldwide. And 18% now charge an extra $100 a year for family coverage if the employee’s working spouse declines coverage from his or her own employer.
[Mermaid]note..this is how real wages sink. As money wages *and* real wages sink, the fall is harder.
Now, some of this is because employers themselves face rising costs for supplying these benefits and, with global competition being what it is, they have to pass those costs along to someone. And they certainly can’t pass them along to consumers at this time.
[Mermaid]Earlier someone mentioned that prices dont always rise for the consumer when the employers expereince increase in costs of production. That, it is passed on to the consumers is macro economic theory. What is illustrated above is reality. If there hasnt been an economic slump and less unemployment *and* especially if there was a wage rise, then the burden is passed onto the consumers. The economic logic here is that it doesnt pay to increase the price of products when the employees themselves are taking pay cuts and have reduced purchasing power. A wage increase would most definitely increase the cost of goods. however look what happens afterward...
But many companies are using the slow economy and the scarcity of good jobs to pass more than the increases in their costs along to employees. According to Hewitt Associates, the cost of health insurance climbed 15% nationally in 2003 and will jump another 13% in 2004. But employees are looking at a 23% increase in what they pay for health insurance in 2004. That will be the third straight year with an increase of 20% or more for employees.
[Mermaid]So even though there is no price increase for the consumer, when his purchasing power goes down, the burden of costs and low profits faced by the employer is still passed on to him. example: imagine you can buy 10 units of food for ten dollars. The effect of increasing the cost of a food block to 2 dollars per food block is the same as reducing the income to 5 dollars without price change for the food. This will lead to low demand for the goods affecting production which in turn affects jobs and then it gets ugly from that.
Workers in the job-is-worth-less recovery are going to feel so insecure in their jobs that it will be tough to recover the ground that they’ve lost so far.
First, the “recovered” economy isn’t going to look that different from the economy during the downturn. Thanks to unrelenting global competition in everything from chips to call centers, companies will be forced to follow the most recent rounds of cost-cutting, restructuring, and job reductions with other rounds of cost-cutting, restructuring and job reductions. That painful process looks like it will be a permanent part of life for employers and employees for the foreseeable future.
[Mermaid]So goods should become cheaper, right..in order to maintain some sort of an equilibrium. But are the employers reducing the price as much as they are reducing the wages/jobs. Do not forget that the reason they are oursourcing and cost cutting is to increase their own profit margins. It is also true that their profit margins are taking a hit from lesser consumer power because of unemployment and wage cuts. So, they are cutting costs by employing someone else and the money is transferred to some other economy. Is it the fault of the working class in this country or is it he fault of the booming global economy? Neither. The fault lies with the profit making businessmen who are not ploughing back the money into the domestic economy to stimulate it further. I strongly recommend reading Walter's excellent time's article on Henry Ford by Lee Iaccocca. While the amount of money that is circulated abroad is miniscule, more disturbingly large chunks of money is fleeing this country to support a meaningless wa
r. Think about it. Really.
Second, the increasingly global labor market will keep the pressure on U.S. wages and benefits. This is especially true because the global labor market now provides competition for the kind of highly trained technical jobs that have been largely impossible to ship off-shore until now.
[Mermaid]Globalisation and economic upturns are part of the economic cycle. It is not the curse or boon for any nation. It is just how things are and its better to understand them instead of bemoaning the lost jobs. It is not something that has happened *only* to Americans. It's like sex. You bleed a little, it hurts a bit, but you learn to enjoy it. Even if it seems that you are being fucked over from behind in the beginning.
For example, the starting salary for an engineer in India ranges between $7,800 and $12,000 a year. In the United States, the starting salary for a comparable engineer is about $43,000. And India is graduating about 300,000 new engineers a year.
But neither India nor any other single country is the real competitive threat to that U.S. worker. Rather, it’s the entire ongoing process of economic globalization that is sweeping across one country after another. China’s programmers and information technology workers undercut the costs of U.S. workers and were themselves then undercut by Russian workers who were then undercut by Indian professionals. An information professional in China earns an average of $8,900 a year, in Russia $6,000 and in India $5,800.
And of course India’s workers face lower-cost competition from places such as the Philippines and Viet Nam.
[Mermaid]Nobody can really escape the global forces. One might dodge it in the beginning, but ultimately, only non zero games will help regain equilibrium and blunt the competitive edge..right now, we are growing sideways...trying to fatten up the different parts of our world body of nations. Once we are all well fed and happy and when we reach a state that is nearing equilibrium(not completely..that would erase the competitive edge), we have to grow taller..towards greater technology..towards higher goals...and towards lofty dreams...we shall conquer death and disease..we may even vacation on the moon..but not until every child is fed, clothed and educated....Imagine you are on your bed, but your head alone wants to look out of the window to watch a glorious sunrise....your body cannot rise without your legs and torso and everything else co-operating with your head to see that beautiful beginning of a day....Your head houses your brain and has the eyes through which you can see the sunrise, but can you feed
just your brain or stick a food tube for your eyes alone? Ignore the rest of your body, your faculties will betray you and fail you...enough already..i am sure everyone got the idea..
It will reduce the amount of U.S. retirement and savings capital available to the U.S. markets. In the short run, it’s likely that workers who find their budgets stretched by this environment will save less in order to keep current spending patterns intact. That’s not desirable and not sustainable in the long run. But it is the normal reaction to a squeeze like this.
It will change the risk that U.S. workers are willing to take with their investment money with three possible reactions:
The likely reaction from most workers facing the likelihood that they’ll have less capital to replace losses will be to seek investments with less risk.
Some smaller percentage may actually take on more risk, essentially buying a lottery ticket and gambling since achieving their goals by any other means won’t seem possible. One side effect of this double-or-nothing mentality is likely to be a rise in the number of financial frauds that promise hard-pressed investors tantalizing returns.
And third, we’re likely to see a revival of international investing as investors seek to find companies able to take advantage of the new global competition no matter where they operate. I hope that that the capital markets in the rest of the world will be able to develop quickly enough to deliver a reasonably honest deal to U.S.-based investors. I fear that’s unlikely.
(end)
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