Wages Stagnation: Causes

 See Wage Stagnation Solutions  
11/30/18  Please link to and share.
 

 
  1. Wages Grew Consistently Until 1971
2. Foreign Competition Was A Culprit
3. Profits Beat Wages in the Flat World
4. Technological Adjustments Slow

5. More College Solution Didn't Work

6. Low Job Relocation
7. World Changed, Good Jobs Disappeared

8. High Skilled Immigration Not a Cause
Editorial Note: Illegal low skilled workers keeps low wages even lower.

1. Wages Grew Consistently Until 1972
WW 2 generated savings, pent-up demand and few foreign few competitors generated 25 years of high profits higher wages and cooperative unions.

 

As if Watergate and the Cold War were not enough, the oil cartel OPEC had the unity to succeeded with a 1973-74 oil embargo. The embargo was targeted at nations perceived as supporting Israel during the recent Yom Kippur War. Trouble was brewing.

Normality ended when Carter appointee FED Chairman Volker found higher interest rates were  not enough so he  lowered commercial bank reserves. This quickly  pushed the Federal Funds Rate to 20%. Banks would not loan. Two recessions followed. The first cost Carter reelection and the second, though severe, was over so Reagan was reelected. The End of the International Liberal Order?  1hr: 28 min

   

2. Foreign Competition Began the Process


High Oil prices pushed Japan into more valued added exports like automobiles, machinery and computers. This competition caused a stagnate Rust Belt with lower wages and eventually lower employment. Japan's manufacturers got lucky from increased demand for gas efficient small green cars with catalytic converters. Detroit  protected profit by seeking tariff  protection. Investment needed to  lower cost and increase product quality was ignored. Auto union leaders protected their positions. Current worker protected existing jobs and salaries by accepting a two-tier wage system.  It minimized the need for new workers who would receive lower wages for a similar jobs. Feeling political pressure Japan built many modern U.S. plants often in the nonunion southern states offering the highest tax incentives.   see  How the U.S. Squandered Its Steel Superiority

 

 
 

3. Profits Beat Wages in the Flat World Competitive Adjustment Battle

 
 
 


Labor Held It's Own Until 1980's

US Companies have competed very well in a flat world using technology, outsourcing to Asia, Mexico...and by keeping wage increases low. Source

Total compensation has done better although Obama Care gave companies an opportunity to again lower compensation. Question: What Happened in 1980?
Source More Data 1 Data 2 Think Rust Belt then NAFTA and soon TPP?  See How Democratic Failed Workers 11 min Short Term vs. Long Term Returns 52 min

 

 

 
 

 

4. Technological Adjustments Slow

Gilded Age Politics from 1865 to 1910 Had No Wage Adjustment as Politicians Protected Business Oligarchs.
  Industrial Revolution #1 Gains Went to the Wealthy. 

 

New Century Workers Gained Fewer Required Hours and
Better Working Conditions as
Industrial Revolution #2 Gains Were Shared Because
Mistreated Factory Workers Revoltes Were Helped by Progressive Era politicia
ans.


Third Industrial Revolution:
 Better Low Priced Consumer Products
 With Slow Wage Growth
.
 

 

 
 

More College Didn't Work

Graduates Doubled

 

 
 

Many Student, Parents, Politicians, Educators
Made Poor Education Investments

See Can Education Reduce Stagnate Income
 

 
 

Wages Down for All But the Best and Brightest

 

 

 Lower Immagration of high-skilled workers

 

Companies figured out that in one department there were stars worth a lot more than the average Joe. These companies looked for stars and paid them bigger dollars. In finance, high tech, and  management the spread began to widen between those in the middle and the STARS.

"In 2011, the top 30 percent of earners with a high-school degree earned more than what 50 percent of workers with an Associate’s degree earned. This same top-earning group of high-school-degree workers also made more than a quarter of workers with bachelor’s degrees. We find that higher-paid high-school-degreed workers are represented more heavily in occupations that require technical post-secondary education attainable through certificates or apprenticeships." clevelandfed.org See Economics of College Education

Some Major Earn Low Wages
See FED Data from 73 Majors

Economic Return Based Upon What You Learn Not Where

Low Job Relocation

Occupational churn the rate at which workers move to different occupations
Declined for a Second Time

Source Why a Stagnant Job Market?

World Changed, Good Jobs Disappeared

A Flat World means our best and brightest students are in a competitive struggle with the best and brightest from around the world. Their wealth creating innovations will quickly spread around a Creative Destructive world. Intelligent computers have replaced many middle skilled workers. This job polarization has decreased the career opportunities for average academic educational High School graduates.
Portable flexible cheap robots in manufacturing and cleaning offices plus 3-D printers creating everywhere will eventually lower human hours worked per task. Talent Exchanges located in The Cloud allow private contractors to bid against well-established companies. This will lower wages paid for many tasks. Startup accelerator companies will require
Nanodegree in place of bachelor degrees. Only wealthy and very academic students will spend many years in college. See No Benefits Challenges of New Contract Workforce NPR Video 1/23/18

 

Middle Prepared Student Jobs Have Disappeared  "As we [WSJ] reported in July, before, during and after the recession, demand for one sort of worker has been persistently stronger: personal-service jobs that involve assisting or caring for other people — from waiters to home-health aides. Bureau of Labor Statistics says, 545,000 jobs have been added  in the past two years in what it quaintly calls “food services and drinking places.” That is about 30% of the net increase in employment (1.84 million) between July 2010 and July 2012." Automotive Sector Up the Value Chain and removes jobs from the middle. Editor's Note: Sevices do nor require an academically oriented secondary education and new automotive jobs are STEM jobs which middle workers do not qualify.


See 1. The Economist2. Liberty Street Economics 3. Post WW2 International Economic Competitive Adjustment Mark Blyth explains 4. Competitive Adjustment in European Market Area at one min and  5. Competitive Adjustment Applied to Trumpism at 4 min 15 Sources: Global Economic Intersection, The Economist, Seeking AlphaBusiness Week, The Week, USA Today, Business Insider

Job polarization
has decreased the career opportunities for High School graduates.