Daily Finance, March 21, 2011, Monday

Daily Finance

March 21, 2011, Monday

Daily Finance

The Sorry State of America's Wage Earners
By David Schepp

It's well known that the typical American household has essentially been running in place or falling behind financially for some time. Sapped by greater outlays for everything from energy and health care to transportation and education, workers' wages have failed to keep up with the cost of living.

What is news, however, is that stagnant wages have been a problem for far longer than anyone heretofore supposed, according to a new report released last week by the Economic Policy Institute, a nonprofit think tank focused on the poor and middle class.

Titled The Sad But True Story of Wages in America, the study found that all workers, regardless of whether they work in the private or public sector, have endured decades of stagnating wages despite significant gains in productivity.

"The EPI study confirmed and elucidated a trend that economists have been tracking for some time," says Matthew Freedman, professor of labor economics at Cornell University's ILR School. "Wages have been relatively flat for the bulk of the U.S. population, not only for the last 20 years, but, in fact, even further back -- well into the '70s."

Demonizing the Public Worker

Freedman says that what gains American workers have seen in earnings "have accrued almost entirely to those at the very top of earnings distribution." That is to say: the rich have gotten richer, while the middle class has been treading water. As a result, the nation has experienced an increasing disparity between haves and have-nots during the last few decades.

The findings throw into sharp relief the current debate about whether public-sector employees -- particularly those who belong to unions -- are paid too much.

As the EPI study puts it:

The current public discussion illogically pits state and local government employees against private workers, when both groups have failed to sufficiently benefit from the economic fruits of their labors.The tactic of demonizing state workers has been used in Wisconsin, Ohio, and other states where Republican governors and legislators have sought to take away public-sector workers' collective bargaining rights. These elected officials, most notably Wisconsin Gov. Scott Walker, argue that state budgets can't afford the largess paid to public-sector employees, despite concessions willingly made by state workers.

The perception that public employees are getting a better deal has stirred up resentment among some in the private sector who, in these austere times, feel they shouldn't be the only ones making sacrifices such as paying more for health care or forgoing raises.

But even if public employees were indeed paid better, the problem with that argument is that it's akin to asking the lone healthy person in a roomful of sick people why he, too, hasn't fallen ill.

A Love-Hate Relationship with Teachers

In the furor that has erupted over state budget deficits, "we've lost sight of the more important aspects of things," Freedman says. It's a classic example of taxpayers' reaction to the conundrum of either paying more in taxes or asking government to cut public workers' salaries.

"When the option is raise my own taxes versus [cut] somebody else's salary," he says, "it's always, 'I'd rather reduce somebody else's salary.'"

It's interesting to think of teachers in this scenario, Freedman says. "On one hand, we spend a lot of time complaining how teachers aren't valued enough, and then on the flip side suddenly now everybody thinks that teachers are greedy and are perhaps overcompensated."

The Only Real Winners: the Wealthy and the Corporations

Of course, the one issue missing from the public debate is that employers have benefited mightily from the fruits of workers' labor in the last couple of decades. According to the EPI study, productivity among American workers grew by 62.5% in the 20 years ending in 2010. Increased productivity benefits companies by reducing their need to hire and train more workers, among other savings.

The rise in productivity is far greater than the increase in real hourly wages for both private-sector, and state and local government workers, which grew 12% in the same period. (EPI notes that overall compensation, which includes health care and other benefits, grew a bit more for both groups, but still lagged well behind productivity growth.)



What's worse is that for workers without college degrees, wage gains have been even more meager. During the same 20-year period, private-sector wages for high-school educated workers grew by just 4.8% -- and a mere 2.6% for state employees. By contrast, real wages for college graduates in the private sector grew 19.4%, compared with 9.5% for those in state government jobs.

Government Policies Put Workers Last

Why have workers, regardless of their education or place of employment, fared so badly in the last few decades? The cause lies in the nation's economic policies, which have not supported good jobs during the last 30 years or so. Rather, EPI's study finds:

The focus has been on policies that were thought to make consumers better off through lower prices: deregulation of industries, privatization of public services, the weakening of labor standards including the minimum wage, erosion of the social safety net, expanding globalization, and the move toward fewer and weaker unions.Such policies, the group says, have eroded most workers' bargaining power, widened income inequality and reduced access to good jobs.

It's not at all clear how to solve the problem of stagnant wages. Still, Freedman says, "It doesn't seem to me that the solution is an extreme one like policymakers in Wisconsin would like to pursue."


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