Janet's Conner

This Blog tell the Truth and will never not tell the Truth. Impeach Bush

Monday, August 28, 2006

Economy: REAL WAGES FAIL TO MATCH A RISE IN PRODUCTIVITY

With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.

The New York Times
By: treven Greenhouse and David Leonhardt
August 28, 2006

That situation is adding to the fears among Republicans that the economy will hurt vulnerable incumbents in this year's midterm elections even though overall growth has been healthy for much of the last five years.

***Only according to the information that the Bush administration would allow out. The real info was kept from the people.

The median hourly wage for American workers had declined 2% since 2003, after factoring in inflation. The drop has been especially noticeable, economists say, because productivity---the amount that an average worker produces in an hour and the basic wellspring of a nation's living standards---has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation's gross domestic product since the government began reporting the data in 1947, while corporate profits have climbed to their highest share since the 1960's. UBS, the investment bank, recently described the current period as "the golden era of profitability."

Until the last year, stagnating wages were somewhat offset by the rising values of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers' benefits has also failed to keep pace with inflation, according to government data.

At the very top of the income spectrum, many workers have continued to receive raises that outpace inflation, and the gains have been large enough to keep average income and consumer spending rising.

In a speech on Friday, Ben S. Bernanke, the Federal Reserve chairman, did not specifically discuss wages, but he warned that the unequal distribution of the economy's spoils could derail the trade liberalization of recent decades. Because recent economic changes "threaten the livlihoods of some workers and the profits of some firms," Mr. Bernanke said, policy makers must try "to ensure that the benefits of global economic integration are sufficiently widely shared."

Political analysts are divided over how much the wage trends will help Democrats this fall in their effort to take control of the House and, in a bigger stretch, the Senate. Some see parallels to watershed political years like 1980, 1992 and 1994, when wage growth fell behind inflation, party alignments shifted and dozens of incumbents were thrown out of office.

"It's a dangerous time for any party to have control of the federal government---the presidency, the Senate and the House," said Charles Cook, who publishes a nonpartisan political newspaper. "It also feeds into 'it's a time for change' sentiment. It's a highly combustible mixture."

But others say that the war in Iraq and terrorism, not the economy, will dominate the campaign and the Democrats have yet to offer an economic vision that appeals to voters.

"National economic policies are more clearly in focus in presidential campaigns," said Richard T. Curtin, director of University of Michigan's consumer surveys, "When you're electing your local House members, you don't debate on those issues as much."

Moreover, polls show that Americans are less dissatisfied with the economy than they were in the early 1980s or early 90s. Rising stock and house values have lifted the net worth of many families over the last few years, and interest rates remain fairly low.

But housing is in for a free fall!

But polls show that Americans disapprove of President Bush's handling of the economy by wide margins and that anxiety about the future is growing. Earlier this month, the Univ of Michigan reported that consumer confidence had fallen sharply in recent months, with people's expectations for the future now as downbeat as they were in 1992 and 1993, when the job market had not yet recovered from a recession.

"Some people who aren't partisan say, 'Yes, the economy's pretty good, so why are people so agitated and anxious?'" said Frank Luntz, a Republican campaign consultant. "The answer is they don't feel it in their weekly paychecks."

Mr. Luntz predicted that the economic mood would not do significant damage to Republicans this fall because voters blamed corporate America, not government, for their problems.

***But who gave corporate America the power to do this? THE REPUBLICANS!

Economists offer various reasons for the stagnation of wages. Although the economy continues to add jobs, global trade, immigration, layoffs and technology---as well as the insecurity caused by them---appear to have eroded workers' bargaining power.

Trade unions are much weaker than they once were, while the buying power of the minimum wage is at a 50-year low. And health care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages.

***That's because Bush is a union-buster and many of your Republicans own stock in pharmaceutical companies and medical facilities. That's why the Republicans won't do anything about the prices they charge! (Well, mostly in someone in their families).

Together, these forces have caused a growing share of the economy to go to companies instead of workers' paychecks. In the first quarter of 2006, wages and salaries represented 45% of gross domestic product, down from almost 50% in the first qyarter of 2001 and a record 53.6% in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132B.

Total employee compensation---wages plus benefits---has fared a little better. Its share was briefly lower than its current level of 56.1% in the mid-1990s and otherwise has not been so low since 1996.

Over the last year, the value of employee benefits has risen only 3.4%, while inflation has exceeded 4%, according to the Labor Department.

In Europe and Japan, the profit share of economic output is also at or near record levels, noted Larry Hatheway, chief economist for UBS investment Bank, who said that this highlighted the pressures of globalization on wages. Many Americans, be they apparel workers or software programmers, are facing more competition from China and India.

In another recent report on the boom in profits, economists at Goldman Sachs, wrote, "The most important contributor to higher profit margins over the past 5 years has been a decline in labor's share of national income." Low interest rates and the moderate cost of capital goods, like computers, have also played a role, though economists note that an economic slowdown could hurt profits in coming months.

For most of the last century, wages and productivity---the key measure of the economy's efficiency---has risen together rapidly through the 1950s and 60s and far more slowly in the 1970s and 80s.

But in recent years, the productivity gains have continued while the pay increases have not kept up. Worker productivity rose 16.6% from 2000 to 2005, while total compensation for the median worker rose 7.2%, according to Labor Dept. statistics analyzed by the Economic Policy Institute, a liberal research group. Benefits accounted for most of the increase.

"If I had to sum it up," said Jared Bernstein, a senior economist at the institute, "it comes down to bargaining power and the lack of ability of many in the work force to claim their fair share of growth."

Nominal wages have accelerated in the last year, but the spike in oil costs has eaten up the gains. Now the job market appears to be weakening, after a protracted series of interest-rate increases by the Federal Reserve.

Unless these trends reverse, the current expansion may lack even an extended period of modest wage growth like one that occured in the mid-1980s.

The most recent recession ended in late 2001. Hourly wages continued to rise in 2002 and peaked in early 2003, largely on the lingering strength of the 1990s boom.

Average family income, adjusted for inflation, has continued to advance at a good clip, a fact Mr. Bush has cited when speaking about the economy. But these gains are mainly a result of increases at the top of the income spectrum that pull up the overall numbers. Even for workers at the 90th percentile of earners---making about $80,000 a year---inflation has outpaced their pay increases over the last three years, according to the Labor Dept.

"There are 2 economies out there," Mr. Cook, the political analyst, said. "One has just been white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings.

"And then there's the working stiffs," he added, "who just don't feel they're getting ahead despite the fact they're working very hard. And there are a lot of people in that group than the other group."

In 2004, the top 1% of earners---a group that includes many chief executives---received 11.2% of all wage income, up from 8.2% a decade earlier and less than 6% three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data.

With the midterm election expected to heat up after Labor Day, Democrats are saying that they will help workers by making health care more affordable and lifting the minimum wage. Democrats have criticized Republicans for passing tax cuts mainly benefiting high-income families at a time when most families are failing to keep up.

Republicans counter that the tax cuts passed during Mr. Bush's first term helped lifted the economy out of recession. Unless the cuts are extended, a move many Democrats oppose, the economy will suffer, and so will wages, Republicans say.

But in a sign that the Republican's may be growing concerned about the public's mood, the new Treasury secretary, Henry M. Paulson, adopted a somewhat different tone from Mr. Bush in his first major speech, delivered early this month.

"Many aren't seeing significant increases in their take-home pay," Mr. Paulson said. "Their increases in wages are being eaten up by high energy prices and rising health care costs, among others."

At the same time, he said that the Bush administration was not responsible for the situation, pointing out that inequality had been increasing for many years. "It's neither fair nor useful," Mr. Paulson said, "to blame any political party."













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