Growing Economies, Stagnant Wages

We still have a couple of months to go, but one wonders if 2011 will rank with 1848, 1917 and 1968 as a year in which economic dissatisfaction led to significant change. Global protests that began with the Arab Spring continued into the summer with the British riots and may be culminating with the Occupy (Take Your Choice) movement. So far only the Arab Spring revolts have led to regime changes. The British riots were a primal scream that ended without much impact on policy. China has also experienced several years of rolling demonstrations about land seizures, environmental degradation and working conditions.

One might argue that 1917 was specific to Russia (though there were growing labor movements elsewhere despite the war and the French Army mutiny of that year had class underpinnings). 1968 didnt lead to immediate changes but did signal the Baby Boom 'Youthquake' was on its way with profound implications to follow. But the larger point is that there have been specific points in history when economic grievances have become more manifest than at other times.

The current connection appears to be the growing income disparity between the financial executive class and almost everyone else. If one subscribes to the wisdom that all politics is local, a welter of specific complaints arises. The New York Times and Economix blog's Catherine Rampell ends her article by saying the US is not the only country in which wages are not keeping pace with growth. The logical response would seem to be... precisely.

The financialization of the western economies (with imitation in China, India and Russia where possible) has rendered the entire interconnected edifice unsatisfactory for many. Particularly, the middle classes who have the education, professional attainments and sense of entitlement to be incentivized to do something about it. Whether this will be sufficient to stimulate any real changes may take several years to become clear. In the interim, this global wave has already driven the previously reigning 'austerity' boomleteers into a defensive crouch. And that is an accomplishment in itself. JL

Catherine Rampell reports in the Economix blog:

In the midst of the Occupy protests, the income gains going to the top 1 percent have gotten a lot of attention. Another way to understand the economic frustrations of the Occupiers is to look at how much middle-class living standards have changed, and how much the overall economy has grown.

A new report from the Resolution Foundation, a British research organization that focuses on workers with low income, has done just that. The report covers 10 rich countries, and looks at the growth rate of median pay versus economic growth per capita from 2000 to the start of the Great Recession
A higher ratio means that the pace of growth for median pay was close to the pace of growth for output per capita. A low ratio means that median pay grew much more slowly than did the economy as a whole.

Of the 10 countries analyzed, Finland showed the closest relationship between the living standards of the typical worker and improvements in the overall economy. The United States was on the lower end. From 2000 to 2007, median pay increased at a quarter of the pace of output per capita. In other words, the typical American worker did not share much in the country’s growing wealth even when the economy was good.

Still, the United States was not the worst of the bunch. In Canada, median pay didn’t grow at all between 2000 and 2007.

The moral of the story is that the United States isn’t the only country experiencing growing inequality. Most of the rest of the developed world is, too.