What happened to wages?

[Marla_Singer]

From what I know, Americans do have much higher wages than Europeans, however, they have a lot more expenses as well. As a result I'm not entirely convinced they are that much wealthier overall.

The thing is that most people consider their wage as the amount which is actually transferred on their bank account at the end of the month. Well that's my case personally. However, in a society with a higher social welfare such as in Europe, those extra social expenses will be paid through payroll contributions and as such won't be counted in your own wage, whereas in the US, the lack of those will mean you'll have a higher wage, but you'll later need to pay for more services in the private sector.

I used to be a strong believer in the idea that the private sector was more efficient than social services during a very long time. Obviously competition is a strong incentive for better productivity. Yet the private sector needs to finance itself on markets which asks for an ever increasing profitability, which actually pressures for more expensive services as a result. The more limited will be leading companies in a specific sector, the more it will tend to abuse from its oligopolistic position the very same way a monopoly would. And its the consumer which will have to pay for it.

Overall I would say that the EU single market is more efficient in protecting consumers rights, yet it has a major drawback: companies are less profitable as a result. On the other hand, the US is a lot more prone to defend corporate interests, which makes companies more profitable and the GDP growing much faster, yet it's done at the expense of the consumer.

Who's right and who's wrong? I don't know. What I know for sure is that this clearly leads to diverging models of society.

 

[hobbsyoyo]

And how does that explain why medical care is twice more expensive in the US than in other developped countries?

You were complaining about your wage, maybe you should look at your expenditures.

It does not explain why medical care is so much more expensive. I was talking specifically about the cause of the decrease in life expectancy in that post because it came up. It was an aside to the point of the thread.

From what I know, Americans do have much higher wages than Europeans,

I am not sure this is true for unskilled labor. For trades and white collar professionals this is true but I think people working in the service industry in particular are less well paid in the US. But I could be wrong.

Wages between $7.25 - 15 are common here, with 30-60 hour work weeks typical. I'd say that outside of the major cities the wages and hours heavily skew to the lower end of that range as well.

 

[PPQ_Purple]

It's not an american thing but a thing around the whole world. And the short answer is that the wages are not the problem but the prices. And the reason why the prices are a problem is our banking system.

TLDR:
Used to be when you wanted something cool you saved up until you had enough money and than you bought it. And for the how ever many months you had to save you sucked up, shut up and lived without. And you had to suffer a lesser living standard to boot as you were setting part of your income aside. And whilst this was all proper and wise, as with all proper and wise things people found it to be a drag. What people want is instant gratification. And that is where the modern fractional banking system comes in. What the fractional banking system is in all essentially is a free license for banks to print money. The way it does this is by allowing banks to give out loans far exceeding the money the bank actually owns in deposits. These loans being covered not by actual real money that the bank has but the hypothetical money it intends to get back from its debtors at some point in the future.

Now, I think you can see where this is going. If anyone can at any time just walk into a bank and take out a loan to buy anything than the purchasing power of any individual at any time goes up tremendously. And when purchasing power goes up prices go up as well. This of course is followed by people needing more money to meet the prices. So far so good though. That's just healthy inflation. And in a healthy system the result of it would be a rise in wages to cover the gap. Only why raise wages when people can just take out more loans?

So you end up with a system where there is ever growing incentive to raise prices but no incentive to raise wages with money being printed left and right leading to inflation.

 

[hobbsyoyo]

I found this article which compares the size and income levels of the US and select EU states but it is poorly written:
https://www.pewresearch.org/fact-ta...estern-europes-middle-classes-appear-smaller/

This article compares wages (paritcularly at the lower end) between the US and select EU states. It does contain a factual innacuracy though - it claims that individual states have wages below US federal minimum of $7.25 an hour. While states can have lower wages in their statutes, the federal minimum wage overrides them in all but a handful of labor categories. Thus, $7.25 is the effective minimum across the entire US. States can have higher minimum wages than the federal minimum and there are a few that do. I am not sure what ratio of the total population lives in states with the $7.25/hr minimum.
https://bookboon.com/blog/2012/01/us-vs-european-wages-and-working-hours/

 

[Ironsided]

For us on the outside, the main thing to note is that the way things are done in America is in no way related to the reason things are as they are in America.

 

[Socrates99]

The progressive tax system has been wrecked by neoliberals on both sides of the aisle in many countries. It's just one factor but here's how it's worked. When your tax bill as an employer is annually tallied it goes off of what slice of the pie is kept. What you bring in minus expenditures like materials, equipment, etc....and labor. When the higher tax margins were in place people were more incentivized to put that money back into companies to increase value and spread it out more amongst employees rather than send it off to "big bad gub'ment."

That's not there anymore. People can keep a bigger and bigger slice of the pie today. Companies can buy back stocks (another idiotic Reagan move) and award top executives bonuses and massive salaries. There's no impetus to not do that.

The theory was that if the tax burden were taken off those at the top they'd be free to spread it around more. The result has been the opposite. There's no motive to do that. Especially when wages are suppressed across the board. You don't have to pay for good quality employees when they're all fighting for relatively similar pay. There was no big pay bump following the Reagan, Bush or Trump tax cuts. At least not for the avg Joe anyway. How people keep falling for it is beyond me. Higher taxes on the top brackets aren't just to fund redistribution programs, public works, etc. They help prevent wealth from being so poorly distributed in the first place.

I'd argue for a much stronger progressive income and corporate tax, keep growth and labor related deductions. Aggressively prosecute tax dodging. Do this while abolishing taxes on raw materials, equipment, fuel and what not to encourage growth. The opposite of the libertarian fever dream.

 

[Lexicus]

It's not an american thing but a thing around the whole world. And the short answer is that the wages are not the problem but the prices. And the reason why the prices are a problem is our banking system.

TLDR:
Used to be when you wanted something cool you saved up until you had enough money and than you bought it. And for the how ever many months you had to save you sucked up, shut up and lived without. And you had to suffer a lesser living standard to boot as you were setting part of your income aside. And whilst this was all proper and wise, as with all proper and wise things people found it to be a drag. What people want is instant gratification. And that is where the modern fractional banking system comes in. What the fractional banking system is in all essentially is a free license for banks to print money. The way it does this is by allowing banks to give out loans far exceeding the money the bank actually owns in deposits. These loans being covered not by actual real money that the bank has but the hypothetical money it intends to get back from its debtors at some point in the future.

Now, I think you can see where this is going. If anyone can at any time just walk into a bank and take out a loan to buy anything than the purchasing power of any individual at any time goes up tremendously. And when purchasing power goes up prices go up as well. This of course is followed by people needing more money to meet the prices. So far so good though. That's just healthy inflation. And in a healthy system the result of it would be a rise in wages to cover the gap. Only why raise wages when people can just take out more loans?

So you end up with a system where there is ever growing incentive to raise prices but no incentive to raise wages with money being printed left and right leading to inflation.

You are kinda wrong about how fractional reserve banking works, but that isn't what I want to address: the real issue is that you're confusing cause and effect. Increasing reliance on credit, rather than wages, to fund consumption is a consequence of wage stagnation combined with the explosive coat growth in things like medical care and education.


Imo the cause of wage stagnation is the destruction of labor's bargaining power, which is a political (and therefore reversible) process.

 

[Lexicus]

The progressive tax system has been wrecked by neoliberals on both sides of the aisle in many countries. It's just one factor but here's how it's worked. When your tax bill as an employer is annually tallied it goes off of what slice of the pie is kept. What you bring in minus expenditures like materials, equipment, etc....and labor. When the higher tax margins were in place people were more incentivized to put that money back into companies to increase value and spread it out more amongst employees rather than send it off to "big bad gub'ment."

That's not there anymore. People can keep a bigger and bigger slice of the pie today. Companies can buy back stocks (another idiotic Reagan move) and award top executives bonuses and massive salaries. There's no impetus to not do that.

The theory was that if the tax burden were taken off those at the top they'd be free to spread it around more. The result has been the opposite. There's no motive to do that. Especially when wages are suppressed across the board. You don't have to pay for good quality employees when they're all fighting for relatively similar pay. There was no big pay bump following the Reagan, Bush or Trump tax cuts. At least not for the avg Joe anyway. How people keep falling for it is beyond me. Higher taxes on the top brackets aren't just to fund redistribution programs, public works, etc. They help prevent wealth from being so poorly distributed in the first place.

I'd argue for a much stronger progressive income and corporate tax, keep growth and labor related deductions. Aggressively prosecute tax dodging. Do this while abolishing taxes on raw materials, equipment, fuel and what not to encourage growth. The opposite of the libertarian fever dream.

This is exactly right. Investment follows consumption because it is people's ability to consume that creates productive (as opposed to financially profitable) investment outlets. Tax cuts for the rich are counterproductive and help inflate bubbles leading to recession.

 

[Birdjaguar]

It is not so simple. These two links tell a bigger story about wages and what has been going on for the past 40 years.

https://www.bloomberg.com/opinion/a...ge-stagnation-is-one-disease-with-many-causes

Wage Stagnation Is One Disease With Many Causes
First it was low productivity. Then it was health insurance. Then it was China. Then it was….
By Noah Smith
February 14, 2019, 5:30 AM MST
One of the most vexing and puzzling problems in the U.S. economy is wage stagnation. There are many proposed culprits -- globalization and foreign competition, the decline of unions, automation, outsourcing and industrial concentration. Plenty of high-quality research is being done to disentangle these causes. But stepping back and looking at the history of wages in the U.S. over the past half-century provides a few clues -- as well as raising some intriguing mysteries.

Since 1964, when data first became available, average hourly earnings for production and nonsupervisory workers have increased more or less steadily, from $2.50 an hour then to about $23.00 today:
Looks Aren't Everything
Average hourly earnings of production and nonsupervisory employees

[link has graphs]

But this doesn’t account for inflation, which raises the prices of consumer goods and thus reduces the real value of the wages workers receive. There are two main measures of consumer price inflation -- the consumer price index and the personal consumption expenditure index. Adjusting wages for these two measures yields a very different picture:
Different Measures, Similar Results

[link has graphs]

PCE inflation is generally lower than CPI inflation, due to different data sources and different methods of weighting the importance of things like rent and health care. So if PCE is used, real wages will look higher than with CPI. But both measures show the same thing -- a drop in real wages from about 1973 through 1994, followed by a bumpy rise from then on.

And this one too.
https://insight.kellogg.northwestern.edu/article/wage-stagnation-in-america

Multiple Explanations for Wage Stagnation

Despite the strength of the findings, Benmelech cautions that “whenever you have an important economic question, it is unlikely that there will be only one explanation.” Globalization, high-tech automation, and labor-market concentration are probably all influencing wage stagnation and income inequality.

Benmelech adds that the study’s biggest takeaway applies to other industries as well. “The notion of [monopsony] market power—that when employers have more power relative to employees, they would pay them lower wages—that’s nothing that is unique to manufacturing,” he says.

As for what might be done to mitigate these disheartening trends—beyond unionization—Benmelech is currently investigating how raising local minimum wages might affect the interaction between employer monopsonies and stagnant pay.

“So many things have happened in the last 40 years—you have different policies, and the world is changing. But employer concentration seems to be an important factor,” he says. “It probably explains at least 30 percent of the fact that wages have not been increasing. And for economists, that’s a large amount of explanatory power.”

 

[PPQ_Purple]

You are kinda wrong about how fractional reserve banking works, but that isn't what I want to address: the real issue is that you're confusing cause and effect. Increasing reliance on credit, rather than wages, to fund consumption is a consequence of wage stagnation combined with the explosive coat growth in things like medical care and education.


Imo the cause of wage stagnation is the destruction of labor's bargaining power, which is a political (and therefore reversible) process.

What you say might be true for americans. But here in Europe labor has not only not lost any bargaining power but if anything gained more as time goes on. And yet you see the same problem all over the world.

 

[Lexicus]

What you say might be true for americans. But here in Europe labor has not only not lost any bargaining power but if anything gained more as time goes on. And yet you see the same problem all over the world.

I don't agree that labor has maintained or strengthened its bargaining power in Europe but that is a whole nother topic. And empirically speaking changing the reserve ratio doesn't do anything because banks lend as much money as they think will be profitable and then interface with the central bank after the fact to fulfill the reserve requirements.

 

[Lexicus]

It is not so simple.

I'm not claiming the processes by which worker power has been reduced are simple.

 

[Hygro]

Wages haven’t stagnated in any reasonable measure of what you can buy with your money but has gone backward for how much agency in living a enfranchised life among your peers your wages provide. Google docs is free and one guy with a spreadsheet would have won ww2 for his country but as a spreedsheet guy and back in America I’m living at home.

I’ll have more to say later on other elements of this topic. But for starters, GDP growth has been lower and lower every decade since the 50s, with a possible improvement this decade and a possible 90s contradiction to the trend.

 

[Birdjaguar]

I'm not claiming the processes by which worker power has been reduced are simple.

I just don't want people to think that there is a simple solution to a complex problem that is dynamic and changing.

 

[uppi]

In the US, this month marks the 10th straight year of job growth. This is unprecedented for recent American history yet people are still being pinched economically as wages have been stagnant since the 70's when adjusted for inflation.

It would be interesting to look at what kind of jobs are being created. If a lot of those are minimum wage jobs, the median income could drop even if everyone who had been working before still gets the same wages.

 

[Arwon]

Wages and earnings growth very stagnant.

Capital's share of national income at record highs.

Industrial disputes at record lows due to a heavily regulated right to strike and unions strangled by punitive rules.

In Australia this question seems fairly straight forward.

 

[Hrothbern]

It would be interesting to look at what kind of jobs are being created. If a lot of those are minimum wage jobs, the median income could drop even if everyone who had been working before still gets the same wages.

When GDP goes up more than the real wages part of the missing real wage is coming from adding jobs to the formal economy that do not generate as much value (in the eyes of the buyers) as the existing average. And yes affordability plays a big role as well. But that only drives down the wages further.

Over the decades more and more activities of people are moved from the informal or household duties economy (not added to GDP) to the formal economy (added to the GDP).

The mass manufactured vacuum cleaner a simple (and small) example.
It clearly pays to work some hours in the formal economy to buy a vacuum cleaner that is going to save me many more hours in my informal household duties time.

There are innumerous others:
* more processed foods in retail and take away meals
* self made clothes, self knitting, self repairs on everthing
* all kinds of household devices saving time and more household duty friendly use of materials and surfaces in housing and house decoration
* shopping a real task with going from grocery to butcher, to bakery, etc

One of the biggest changes from informal to formal economy is coming from family care
This one is also strongly driven by full education for male and female.
The effects of that massive change demographically-economically like a python having eaten a big animal... we are still digesting in our economical change the consequences

In the 50ies it was simple:
The informal economy care was mainly done by women.
Not only the children at the start of marriage-family, but also in the last phase of live: women being slightly younger than their husband and getting a lot of years older than their husband (that husband was taken care of by their wife).
And ofc when that wife was old, the husband dead, and in need of care... who was doing that ? Mostly ofc some daughter or the wife of some son.
With women more and more working in the formal economy the care sector starts growing. And that means more GDP is added. But the people helping the elderly, the actual production work, that is all low wages.

A lot of the GDP growth of the past decades did come from this kind of add-on low-wage GDP replacing household-family informal economy.

You can also say that we have had a couple of lazy decades behind us where for multiple reasons we dif not adapt our economy enough to generate enough productivity, to produce enough high value jobs.
Multiple reasons of governing failure to keep up with exposing themselves with sharp management info and all kinds of ideological and politics blockades (blocking understanding and blocking actions).

Anyway
I only wanted to say a few words that our GDP is also using less fertile soil and we, as "farmers", get less yield from that.
I come in a couple of days back with someting more comprehensive, also on where and how money is leaking away from the real wages.

I found this article which compares the size and income levels of the US and select EU states but it is poorly written:
https://www.pewresearch.org/fact-ta...estern-europes-middle-classes-appear-smaller/

This article compares wages (paritcularly at the lower end) between the US and select EU states. It does contain a factual innacuracy though - it claims that individual states have wages below US federal minimum of $7.25 an hour. While states can have lower wages in their statutes, the federal minimum wage overrides them in all but a handful of labor categories. Thus, $7.25 is the effective minimum across the entire US. States can have higher minimum wages than the federal minimum and there are a few that do. I am not sure what ratio of the total population lives in states with the $7.25/hr minimum.
https://bookboon.com/blog/2012/01/us-vs-european-wages-and-working-hours/

I come back on that comparison as well.
Pew does mention it: the wellfare system of most West European states does add a lot of money back to the people that are private bills in the US (and in for example Switzerland)
Not every country however with the same accuracy to get base lines among all "citizens in need" profiles more fair, and not every country with the same efficiency in needed civil servants and their cost.

Too much inertia from lack of learning on the job by everybody.
lazy.

 

[civvver]

For me my wages have gone up, a lot actually- ~60% since 2010 or about 5% year over year. The issue is my costs keep rising, mostly in three categories: Insurance, entertainment costs, transportation. Insurance I have no control over. I went from 100% employer paid premiums with a $500 deductible in 2012 to now I pay $240 monthly pre tax and am in an HSA with a $2800 deductible. My out of pocket costs plus insurance premiums so my total health care costs for 2012 when my first daughter was born was $2200. In 2016 when my second daughter was born it was around $7000. It's money I don't really see but I'll get a 3-5% raise but my take home monthly only goes up like $100. You hardly even notice it.

Then entertainment, which is completely discretionary, but now to take the fam out to dinner and movie is over $100. A movie ticket is $10-12, used to be like $8 a decade ago. A burger at a sit down place is $12, used to be more like $10 a decade ago. I know these are small amounts but with four people it adds up. Hotels are so expensive too. I remember a nice hotel room being around $100 in the early 2000s. Now that's a dirt cheap roach motel. A decent one like a holiday inn is ~150 a night once all the taxes are included.

Transportation is mostly just the cost of a new car. A really great family car 20 years ago was around 25k. Now they're 40k. Guess you gotta go used. We always buy new but keep em around a while. My 2008 I kept 8 years before trading it in. Current cars are 10 years old and 4 years old. I really hope not to have to purchase anything for another 5 cus I'm sure by then that finance payment will be half my mortgage.

So most of it is our fault, not being willing to cut back on discretionary stuff. Sure my cable bill is about the same as 5 years ago somehow by some miracle, but I have netflix, prime and disney plus lol. Like $400 annually on that.

 

[hobbsyoyo]

@Hygro and @Hrothbern
When are you going to post all your thoughts? You said you'd come back to them.

 

[civvver]

To me I feel like wages have gone up, a fairly good amount across the board, but so does all the stuff that you pretty much have to have. A cell phone now is a necessity vs 20 years ago it wasn't, though I guess we don't need landlines any more so maybe it evens out? Insurance is way more expensive though. Food is way more expensive unless you just eat the cheapest stuff like only chicken, rice and beans. Beef is far more expensive, maybe that's good for the environment.