This week's market meltdowns are being attributed by many to the financial sector's dawning awareness that the forces they have unleashed are coming back around to cut their incomes and jobs.
If so, research shows that millions of Americans have preceded them. Median US household incomes peaked 11 years ago, in 1999. In the ensuing period the wages of the top 2% of US wage earners leaped 75%. Yes, you read that right. Given the increasing 'financialization' of the US (and to a lesser extent, European) economy, much of that increase went to traders, bankers and analysts in the financial sector.
Meanwhile, jobs have become harder to find, particularly full time jobs. In the age-old battle between capital and labor, capital has been the clear victor since the 1970s. What was so significant about that decade? It heralded the full return to global competitiveness for Germany, Japan, the UK, France and other countries that had been laid waste by WWII. The increase in demand from those recovering economies helped spark the first Arab Oil Embargo, as the oil producing states began to get a better sense of their power. The loser in all this was the middle class American, who mistakenly thought that the preceding thirty years of prosperity were a birthright, not a gift.
Forty years on, the US remains increasingly resentful and uncertain about how best to proceed. The data suggest that the more people who benefit from an economy, the better that economy is likely to do. Unfortunately, they also suggest that when fewer do well, there will be a similar impact -as the bankers are now learning. JL
Matt Kennard reports in the Financial Times:
According to figures released last week, median wages have continued to fall across the board in the US since 2006, and have never fully recovered from the 2000-01 financial crisis when the dotcom bubble burst.
The real median household income peaked at $53,252 in 1999.
Pat Buzzee has spent his working life as a machinist for Electric Boat, a submarine manufacturer near his home beside Connecticut’s Long Island Sound.
Early in his career, in the 1980s, Mr Buzzee was one of 30,000 who worked in southern Connecticut’s thriving shipbuilding industry.
But while the 58-year-old has held onto his job – he now works as an inspector – the industry has shed 20,000 workers in the region over the past two decades. This has left many men out of work and others having to accept lower wages elsewhere.
Difficulties persisted even for the workers who, like Mr Buzzee, managed to keep their shipbuilding jobs.
“In the late 80s, we were in competition with another shipyard here, so the company, in order to stay competitive, would hold wages down,” said Mr Buzzee.
“For five years, we never got a general wage increase. After a few years, that really catches up with you. Costs are going up but your wages aren’t.”
He added: “The last couple of decades have been very hard for people like me.”
The latest income figures from the US census bureau show that the downward pressures Mr Buzzee has felt for years are spreading to the rest of the middle class.
For male workers in the US, the long-term trends are even bleaker. “What’s happened to the American man since the early 70s is quite dramatic,” said Michael Greenstone, a senior fellow at the Washington-based Brookings Institution think tank.
In 2009, the median full-time male worker aged 25-64 was earning $48,000 – roughly the same as in 1969 in real terms. Meanwhile, in the same 40-year period, the income of the top 2 per cent of working-age men has jumped 75 per cent.
In addition, as the labour force has fractured and become more flexible, increasing numbers of men have started working part-time or in short-term contracts. When part-time workers are included, the median wage for the US man has dropped 28 per cent since 1970 in real terms.
“To put that into perspective, in real terms it takes men back to where they were in the 1950s,” said Mr Greenstone. “I don’t think there’s been a period in American history where you’ve seen such a large, systemic, long-term decline.”
Along the Connecticut coast, men blame their plight on a combination of factors: falling union membership, jobs moving overseas due to the decline in manufacturing profits and stagnating wages. This has created what some sociologists call a new “precariat” class – a proletariat trapped in precarious part-time jobs.
Some labour analysts also point to the “financialisation” of the US economy since the 1970s. Business leaders and their political allies, meanwhile, argue that freer trade, a more flexible labour market and a decline in union power has been a net positive for the US economy. The ability of companies to downsize, they argue, helped the US avoid a depression in the wake of the financial crisis.
However, Joe Courtney, the Democratic congressman for this district of Connecticut, says the trend towards more liberalised trade policy and the steady deterioration of union power since the Reagan presidency has killed jobs.
“The decline in union membership is certainly attributable to free trade agreements. It has gone from a pretty heavily unionised state to a minority situation,” he said.
Certainly union membership has fallen. In the 1950s, about a third of the US workforce was unionised; by 2006 the figure had dropped to 12 per cent. As a result of this decline, and a more flexible job market, the path whereby a young man would choose a profession, train, join a union and follow in his father’s footsteps is increasingly rare.
John Olsen, president of the AFL-CIO union federation in Connecticut for the past 23 years, puts the blame for wage stagnation squarely on decades of attacks on unions. “If you look at the declining lines of wages and union membership, you see they both go down together – they correlate nearly exactly,” he said.
Mr Buzzee is not optimistic about the future. When he was growing up, he remembers his parents and two siblings “never going without”. His mother did not have to work, and his father earned enough in the Coast Guard.
“We never seemed to want for food or anything. We had clothes on our backs,” he said.
But those days are gone. “Nowadays, it’s impossible for one parent to support the family, and even with two working it’s a real struggle.”
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