Thursday, September 20, 2018

The "Rising Wages" Myth In Trump's USA And How It Originated

The latest fulsome malarkey being propagated by the financial press and assorted pundits is that incomes are rising and Americans ought to feel more of a "wealth effect" than ever before. No one seems to mention how much of the current "deregulated" economy is still built on gig jobs, such as using Task Rabbit, and Uber here in Colorado - but still not earning enough to afford a median scale home in Denver (price: $549,000).   Or a median priced home here in the Springs ($355,000).

Why not? Because one would have to put together earnings from dozens of gigs every day to make enough money to afford such homes, or even a basic single bedroom apartment in Denver for $1,490 a month.  So the most the gig jobbers can manage is maybe- if they're lucky- finding a bedroom to rent in someone's home for $650 a month. That is now considered a great deal.

Oh yeah, the financial media is full of all the jobs going unfilled, but what are they exactly? In Colorado in general they include landscapers, agriculture workers, retail, restaurant wait staff (some 5, 600 positions vacant last month alone) and construction.  In the case of the wait staff one restaurateur even told the Denver Post he would immediately hire anyone "with a pulse"..  But still no takers, neither for line cooks. Why not? Well because one would need to earn at least $60,000 a year to afford even the most modest single bedroom apt. and neither job pays that much.

So, it was kind of laughable when on Sept. 12, the WSJ featured this editorial:

Trump's Income Bump - WSJ

In which it was claimed:

"Real median household incomes ticked up 1.8% to $61, 372 between 2016 and 2017 while the poverty rate dropped 0.4 percentage points to 12.3 % according to the Census Bureau. ...

Incomes increased across the distribution range with the share of people earning less than %15,000 declining 0.3 percentage points to 10.7%, the lowest level since 2007."

But how real is this income increase exactly?  When one turns to the front page of the same issue, one comes to an article by Janet Adamy and Paul Overberg with a similar leading header 'Incomes Rise, Poverty Falls Again' .  But when one reads between the lines, as it were, a different story emerges.

We learn, for example:

"Incomes have grown 10.4% in the past three years and last year's figure was the highest on record. But a change in  the way the numbers are calculated over time makes comparisons imperfect and census officials said last year's figure wasn't statistically different from income peaks in 1999 and 2007.

The result is that the typical American household's income is stuck where it was before the last two recessions.  The 2017 growth rate also lagged behind the previous two years."

In other words, last year's growth rate for income - the first full year of the Trump administration, saw less growth than the previous two years (for the Obama administration).  In addition, as the quote from the piece points out, "last year's figure wasn't statistically different from income peaks in 1999 and 2007."

WSJ columnist William Galston also reinforced this in his column yesterday (p. A13), writing:

"Most of the income gains from the post- Great Recession low of  $54, 700 in 2012 reflect increases in the number of people working and hours worked, rather than in hourly compensation for each worker."

Note that last part again, 'rather than the hourly compensation for each worker'.  In other words, most of the financial media that jabbers on about the great income surge is comparing applies and oranges. Galston supports that take when he goes on to write: "As we approach full employment income gains will be sustained only by rising wages."  In other words, rises in hourly compensation per worker.

Anyone else get the feeling we're being gamed here on the "rising" income issue? Maybe by media agents and sources committed to make Trump look better than Obama? 

The real reason incomes rose also was noted in the article by Adamy and Overberg, showing why so many workers really aren't that much better under the reign of Dotard:

"Incomes rose mostly because more people worked more hours and to a lesser extent because their wages increased."

And we also read:

"Some economists said they are puzzled that wages haven;t risen more quickly given the overall strength of the economy and an unemployment rate around 4 percent"

But we already know why, because most employers don't want to pay higher wages.  Recall in a January 10 post I cited a Denver Post Business column  (Jan. 7,   p. 3K, 'Don't Get Your Hopes Up For A Raise') from which  we learned first and foremost, companies would much rather give one off "bonuses" and leave out any permanent pay raises.  As the piece noted:

"Those one time bumps, whatever really precipitated them, don't mean higher wages are around the corner. ...And for now employers are in no hurry to raise them."

Why?  According to Paula Harvey, VP of Human Resources at Schulte Building Systems in Houston:

"Companies are really hesitant to give raises. When you give a raise, it's stuck in the pay system. It is something you're guaranteeing: it's becoming a fixed cost. "

Harvey insisted it's much better for companies to preserve "flexibility" so instead companies enact "variable pay". This can come in the form of one off bonuses - say on a per year basis- or if you are a stellar performer you can get a "bigger bump". Say equal to a half year's wage increase of 3 percent. (If you are a super star performer you have the optimal chance of getting a permanent good raise.)

But for the rest it's 'catch as catch can'.  In other words, permanent salary bumps are just too expensive and if "times get tough, the needed pay cuts hurt morale and productivity".

Despite the WSJ editorial's humping the income increase, it is mostly just a big myth, and nothing's changed since that Jan. 10 blog post.  Indeed, in The Weekend Financial Times we learn companies have been even more tightfisted. According to Heidi Shierholz, senior economist at the Economic Policy Institute, insists that companies have contributed to personal financial insecurity in the first place by removing financial safety nets. She goes on to say:

"As well as keeping wages as low as possible they have shifted the risks involved in meeting retirement obligations by eliminating final salary pension schemes".


"My concern is employers can implement low cost, gimmicky financial welness programs, instead of putting real skin in the game - investments in employees in the form of higher wages and higher retirement contributions."

In other words, despite all the media hype and hoopla,  corporations, companies, employers are still getting the better of their workers.   William Galston's final words in his WSJ column are a sobering reminder that our income situation is no where as rosy as we've been led to believe:

"One thing is clear: Current policies offer little hope of reversing the steep decline in the share of U.S. income that flows to workers, Unless we change course, today's loss of confidence in a better future will persist."

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